The government decided to appoint a third book runner for the proposed initial public offer in Maruti Udyog Ltd following a request from Suzuki Motor Corporation, which had underwritten the issue at Rs 2,300 per share.
The government is set to appoint a consortium of JM Morgan Stanley and HSBC as co-bookrunners in addition to Kotak Mahindra Capital Company Ltd and ICICI Securities (I-Sec), which are already working on the public offer.
"Suzuki's co-operation is essential for the IPO. We decided to appoint a second co-bookrunner following a request from the Japanese automaker, which felt two merchant bankers might not be able to handle such a large public float.
"The core group on divestment has already approved the consortium and we will inform the other book runner s once the decision is approved by Divestment Minister Arun Shourie," a senior divestment ministry official told Business Standard.
Kotak Mahindra and I-Sec did not stand to lose because of the third book runner, the cost of which would be separately borne by the government, the official pointed out.
According to merchant banking sources, the government will find it difficult to find buyers for Maruti's equity at a price significantly higher than what has been committed by Suzuki.
Suzuki, which has management control in the company, had suggested a hard underwriting by merchant bankers.
The idea of hard underwriting found favour with the divestments ministry, but was struck down by the Securities and Exchange Board of India.
"Hard undertaking would have compelled the merchant bankers to cover the difference between the price the government got through the book-building process and the figure committed by them. While no merchant banker was willing to take the risk, Suzuki was pressing for hard underwriting to reduce its exposure in the public offer," a merchant banker said.
The government, however, is confident of getting a better price for the 3.6 million shares, representing 25 per cent equity of Rs 100 face value that will be sold in the market through the book-building route.
"Suzuki did not commit to underwrite the public offer without reason. The book value of Maruti has risen to Rs 2,150 from Rs 2,000 when the government gave up management control. With the company back in the black and maintaining its position as the country's largest auto maker, will be ample interest in the IPO," the official said.