Tuesday, September 8, 2020

OFS of BDL shares by Govt of India

 Bharat Dynamics slipped 14 per cent to Rs 333 on the BSE on Tuesday as the government's 15 per cent stake sale in the company via offer for sale (OFS) route opened for non-retail investors today. 

 

The government of India (GoI) is planning to sell 15 per cent stake in the defence company today (September 8), and tomorrow. The Centre, through President of India, owns 87.75 per cent stake in the company and is looking to offload 27.1 million shares.

The floor price for the OFS has been fixed at Rs 330 per share, a 14 per cent discount to Monday’s closing price of Rs 385. The market has corrected to the floor price set by the Government. The price has further fallen to 316 today. Hence, even the buyers of the discounted shares have suffered a loss within a few days of OFS.

 

Why did GoI choose to set the floor price so low? It stood to make a huge loss (more than INR 100 Crores) on that count.

 

One possible reason could be the lack of confidence in the market price of the share. If the market price ruled below the floor price before the OFS date, the sale would fail. GoI might have decided to avoid failure at any cost and hence minimized all risk. Hence the resultant loss of more than INR 100 Crores.

 

Another assumption can be that GoI wanted to leave something on the table for the investors. Given the fact the share price has further corrected to INR 316, even investors at low price stood to lose.

 

Since both, GoI and the Investor, lost in the process, it appears that the OFS was handled poorly.

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