Now the government wants to do a follow on public offer in all its listed companies. This will help it garner resources (badly needed) to reduce the budget deficit.

However it cannot do what the ordinary promoter does – talking up the price, rigging it up and sending it on a frenzy, splitting the shares into a Re. 1 face value, etc. so it is subject to the vagaries of the market. Also when merchant banker ‘A’ gets the mandate he will not allow others to make too much money. So what ‘B’ a fellow merchant banker does is he goes to the smaller cities and sells the shares short – hoping to buy it on listing. The market takes it as a good signal and either short along with him, or do not fill up the form. Will the ‘other’ merchant banks play this game with NTPC (for example)? Time only will tell.

My friends in the MB circle had told me the pricing in this share would have been in the region of Rs. 250 –  as advised by a big MB. However yesterdays fall in the market has poured cold water. So what should be the solution available to the government?

Well in case of a FPO the pricing band needs to be announced only 48 hours before the issue. The government (in all cases they should) at least in case of its own shares SUSPEND dealing for 5 days. Heavens will not fall if this is done. The government will escape the frenzy, the sleazy M bankers will not be able to play their dirty games, and the long term investor will not miss 5 days of trading.

This is the advantage of being the rule maker – you make and break rules when it suits you.