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Balco and the stiff upper lip

Shaji Vikraman

A WEEK-END is not exactly the best of times to sit down with a battery of senior Government officials, lawyers and investment bankers.

But at Yojna Bhavan, which houses the Planning Commission, and now office to the Minister-In-charge of Disinvestment, Mr Arun Shourie, such a Saturday meeting seems to be inevitable, given the blood letting over the Balco sell-off and a public interest l itigation (PIL) to cope with.

Obviously, after the second strategic sale of a Government-owned company to a private company, part of the discussions centre around the learning curve for the Government in handling such sell-offs.

Consider this for instance. When the Government was pushed hard for more details about other bidders and the bids put in by them for Balco early last week, Mr Shourie chose not to talk about the other bidders. Now it seems, the silence is explained by th e fact that he was advised by bankers and the lawyers handling the disinvestment not to discuss the other bids.

Helpful bankers now say that this is considered to be a standard practice, especially in international deals for strategic sale of equity. Besides, in the storm that was generated over the deal, the Government also perhaps did not mention another fact. T hat it was not in a position to disclose the details due to an agreement with the winning bidder that it would not go public on the unsuccessful bids.

Sadly, this is where the agreement may have been one-sided, with no fetters placed on the winning bidder to talk about the other bids. So technically, there is nothing which could have prevented Sterlite from talking about the rival bidders. It is anothe r issue that one of the bidders squealed, forcing the Government's hand later.

The Government officials have let it known privately that one bidder had confided to a senior industrialist that anyone offering to pay over Rs 300 crore, ought to be a fool.

This is not the case with such agreements in the international arena. Bankers say that overseas, not only is the Government forced to keep mum, but the company that wins the bid also has to adopt the same tune, something which the babus in India are fa mous for -- ``my lips are sealed.''

In fact, the latest buzz is that the Government may now look at changing shareholders or other allied agreements during privatisation bids, so that this too is factored in.

Be that as it may, there seem to be other factors which had a bearing on the Government's decision not to go the full hog in revealing details about the Balco disinvestment.

One, was a warped advice from lawyers that Sterlite or any other company may well walk out of the deal, before the agreement is signed, if the Government goes to town on the minute details of all the bids.

The provocation, according to the lawyers, was the fear that shareholders of the successful bidder may block such a deal questioning the wide variation in the bids and the large pay-out of shareholders' money.

The second, but more plausible reason for the ``read my lips'' approach, could be the rather chastening experience of the Government in the bids invited for FM stations, mainly in metros.

Although the Government had put in conditions such as payment upfront of 50 per cent of the floor price and furnishing of bank guarantees for successful bidders equivalent to one year's revenue fees, it turned out to be a case of history repeating itself .

After the belated realisation that the FM venture would not pay off, a few corporate or media houses fled the scene after they were the chosen bidders. In the process, some of them opted to forfeit half the floor price. It is not yet clear whether they h ave got away with this, as several Indian telecom companies have, thanks to support from top bureaucrats.

In all cases of disinvestment, there is a standard condition that the bidder would have to forfeit a certain amount if he pulls out half-way through the process. In the Balco disinvestment, the bidders had to furnish a bank guarantee of Rs 50 crore.

With Air India and Indian Airlines next to come under the hammer amid greater public scrutiny, the blood letting may be fierce, unless the Government changes its stance on these issues. This is where more week-end meetings may be opportune.