The Hindu Business Line : NTPC offer: The way to disinvestment

AS expected, the initial public offering of National Thermal Power Corporation (NTPC) has got a tremendous response generating bids more than 12 times the number of shares on offer. Total number of shares bid by investors add up to a whopping 1,118.46 crore against the 86.58 crore on offer. That is an eloquent statement of faith from investors on the quality of the offering.

The response once again underlines what was proved in February/March when the government divested stakes in ONGC, IPCL, IBP and Dredging Corporation in close succession — there is an enormous appetite out there for public sector stocks. The response should also, hopefully, silence those who have been saying that the Indian market lacks the depth to take on such large public offerings.

The success of the NTPC offer should be an eye-opener to the Government that is trying to walk the tightrope on privatisation and disinvestment. It stands to make Rs 2,700 crore from this offer alone, or about 68 per cent of its disinvestment target for the fiscal. And that, by divesting just 5 per cent of NTPC's equity!

In fact, the Government may just have found a way to raise funds from disinvestment without ruffling too many feathers. Not that the strategy is new though. Disinvestment, as a process, first began in the early 1990s this way when the then government sold off small lots of shares in companies such as Container Corporation and IOC.

In fact, India is not alone in the strategy of divesting minority stake in state-owned companies. Last week, the German Government decided to divest a 7 per cent stake in Deutsche Telekom that will result in its holding falling to 36 per cent in the company. But in the process it would be richer by $4.9 billion and the main reason for the government to do this was to rein in its budget deficit in order to adhere to EU norms. There are several reasons why New Delhi should consider selling off minority stakes in the market in more of its successful, profit-making companies. The obvious reasons, of course, are that it is a non-controversial way of raising money to bridge the budget deficit and what is more, it does not result in transfer of the public sector company into private hands.

From a larger perspective, there is the all-important issue of canalising domestic savings to productive use. A recent Reserve Bank of India report shows that people are parking more funds in bank fixed deposits while their investments in the capital market has dropped considering.

The Government needs to bring together retail investors and public sector companies, which have large need for funds. One reason why public sector behemoths, such as NTPC, could not access the capital market till now was that it would have resulted in a dilution of the Government's stake in them. There are several such companies, especially in the power sector, such as National Hydroelectric Power Corporation and Power Grid Corporation, which have ambitious investment plans running into tens of thousands of crore rupees. By allowing them to raise funds from the market and using the opportunity to offload some of its own holdings in such companies (as it did in the case of NTPC), the Government will be doing a great service not just to those companies and itself but also to the people who, starved of good investment options, are idling away their cash in fixed deposits.

Second, good paper widens and deepens the market. It is significant that NTPC should attract such attention though cming close on the heels of the TCS mega IPO that raised Rs 5,000 crore. Importantly, this period has also seen hectic activity in the secondary market; the BSE Sensex has appreciated nearly 5 per cent in the last one month. So it is not that investors are cashing out in the secondary market to subscribe to these mega offers.

Third, selling off a 5 per cent here or a 10 per cent is not really privatising but by divesting and listing these PSUs, the Government is ushering in dynamism and discipline in their top management. For, once their stock is listed, these companies have to abide by the norms of the stock exchanges which means high quality disclosures. Also, they will be monitored by investors, institutional and retail.

Finally, it could also result in some much-needed functional autonomy for the PSU top management which will have to keep in mind the interests not just of the government but also the common investors.

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