Firm on a quick and efficient revenue mop-up, the government has decided to embark on phased disinvestment of shares in key government-owned Public Sector Enterprises (PSEs).
According to a senior Finance Ministry official, the government is considering divesting 2 per cent equity in identified PSEs, which are 100 per cent government-owned, through an open auction on the 15th of every month for the next five months.
“We believe divestment of up to 25 per cent in this manner will unlock serious value in terms of mission-critical revenue without conceding any private sector control on Board decisions,” he told The-Hindu. This reveals that though the government has so far been announcing plans to offload PSE equity in the region of 10 per cent, it has now scaled up its disinvestment plan.
The Indian Companies Act treats anybody holding more than 25 per cent share in a company as a special minority shareholder with power to block any special resolutions moved by the board of directors.
This move is one of the key components of Finance Minister P. Chidambaram’s multi-pronged strategy to nurse an ailing economy back to health. The economic ills include an increasingly unmanageable fiscal deficit, runaway inflation, and an economic slowdown leading to diminished public and private investment despite demand growth.
The sequential, piece-by-piece disinvestment plan is a politically savvy move intended to dissolve political opposition — especially by the Left parties, which have accused the government of selling family silver.
It is also positioned to rally investor interest across a five-month period, using that to repeat the reforms message every time a portion of the stake invites capital. Such a strategy has never been tried in the past, but given the government’s desperation to get disinvestment going for fiscal reasons, reduce the magnitude of the Opposition attack for political reasons and prolong its reformist image, this plan may just work — though much depends upon how investors, especially the middle class, responds to the offerings.
“By putting only 2 per cent on the block at a time, consecutively for 5 months across multiple assets, the government will ensure sufficient excitement and investor peer pressure in the market. Those who may get left out in the initial offering would reapply and would be willing to pay a mild premium over the previous bid. That’s how we hope to create a larger pool of engaged investors and yet average out the price at a higher level than the initial offering” the official said.
The sale of minority stakes in five PSEs — Hindustan Copper (9.59%), Oil India (10%), RITES (10%), MMTC (9.33%) and Nalco (12.15%) — has recently been approved by the Cabinet with a target revenue mop up of Rs. 15,000 crore.
Last month, Mr. Chidambaram had announced that the revenue target from disinvestment in the current fiscal year was Rs. 30,000 crore. This indicates that more PSEs will be added to the list. The Finance Ministry has picked on SAIL (which has already received Cabinet approval for sale of 10.82 per cent of its equity) and BHEL (for which approval was deferred) for divestment on priority.
The government has had to defer Rashtriya Ispat Nigam Ltd’s (RINL) Rs. 2,500 crore Initial Public Offering (IPO) due to weak stock market conditions and is still to realise any disinvestment revenue despite being six months into the fiscal year. In the last fiscal too, the government fell short of its Rs. 40,000 crore revenue target through disinvestment by Rs. 26,000 crore. However, buoyed by the bull run in the markets after a slew of pro-reform announcements, the Finance Ministry is now hoping to make up for lost time over the next five months.