Through offer-for-sale route, Govt can auction small chunks across PSUs

Having fallen terribly short of its Rs 40,000-crore target from stake sales in public sector units for the current year, the Finance Minister has lowered the disinvestment target to Rs 30,000 crore for next year. It managed to raise only 35 per cent (about Rs 14,000 crore) of the targeted amount this year.

Achievable target

The new target, for once, looks within reach. Now that the Government is willing to take the offer-for-sale route to divestment, it can auction small chunks across many PSUs.

Now, based on current market valuations, it could raise about Rs 24,437 crore just by selling five per cent stakes in just 7 PSUs — SAIL, Oil India, Hindustan Copper, Coal India, MMTC, BHEL and Neyveli Lignite. The proceeds would go up to Rs 48,873 crore on a 10 per cent stake sale in each of these companies.

Sale of its entire stake in Hindustan Zinc (29.53 per cent) and Bharat Aluminium Company (49 per cent stake) to Vedanta Group could fetch it even more.

Vedanta, which is in the midst of reorganising its holding in India, has offered to buy out the Government's stake for Rs 15,000-16,000 crore. In addition to this, sale of shares held by SUUTI (erstwhile UTI's stakes in L&T, ITC and Axis Bank) could add about Rs 30,000-32,000 crore to its kitty. A 10 per cent stake sale in Rashtriya Ispat Nigam is also on the cards.

Setting the stage

A lot, however, will depend on the market conditions and investor appetite for the respective offers, since this year's showing — especially the auction of stake in ONGC — wasn't impressive. The Government, however, is armed with a plethora of options, ranging from normal book-building to auction to IPP route besides IPO (for unlisted companies).

Of course, it is to fix this problem that the Budget seems keen on improving retail participation in equity markets with the slew of capital market initiatives such as Rajiv Gandhi Equity Savings Scheme and lowering of STT.

(This article was published on March 16, 2012)
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