The government has successfully completed the OFS (offer for sale) for Coal India of 10% of share capital successfully. The price realised is marginally higher than the floor price of Rs 358 and the total sale would fetch the government Rs 22,600 crs. This makes this sale/divestment the biggest ever and beats the earlier best which again was Coal India in 2010 when the government realised about Rs 15,000 crs.

There was a reservation for retail investors of 20% of the FPO size and it was subscribed 44%. There would have been a much better response if the regulator in its wisdom would not have insisted on 100% upfront payment. More of that a little later. The non-retail portion was oversubscribed 122% of course with the help of L.I.C of India who is rumoured to have invested about Rs 10,000 crs. This forms roughly 44% of the overall issue. While the figure is large then important fact remains that there has been participation from all quarters.

The success of this FPO will prompt the government to bring other issues pending divestment on the fast track and I would not be surprised if we have the next issue on the coming Friday.

Coming to the retail upfront money payment. The retail investor enjoys arelationship with his broker and there are arrangements between the two of them in terms of limits and payment. In India the use of electronic transfer of funds as small as one and two lacs are not yet a normal thing. When the retail bucket is a mere 2 lacs at upper limit for a client to deposit 2 lacs upfront to bid in the FPO is simply not possible. The best that an investor can do is give a cheque to the broker the following morning after an FPO is announced and this instrument would typically take 2 days to clear.

To expect that the investor will have a clear margin lying in deposit with the broker because the government will do an FPO is not possible. The next question is that when this is a secondary market transaction routed through the broker and he is entirely responsible for the completion and settlement of the transaction, why the need to take 100% upfront from the weakest strata of society? If his participation is to be encouraged this system which is actually hampering participation be removed. Gone are the days when brokers were not adequately capitalised and did not have the resources. Today the case is different and stock brokers have balance sheets as big if not bigger of many of the large cap companies listed on the bourses.

There is no risk in settlement as the seller of the shares is the government of India and the VAR or value at risk for such shares is lower than the rest of the market. If the government intends to raise money from divestment and wants the retail bucket of 20% fully subscribed even in larger issues, it will simply have to do away with the 1005 upfront margin system.

In conclusion while the OFS has done well and bolstered the governments resources and confidence, the  retail investor needs the regulator and the stock exchanges to consider this aspect which is hampering investment.