Politics of divestment

Disinvestment in central public sector undertakings (PSU) has rarely if ever been enmeshed in local politics. That has changed with the Tamil Nadu Government initially voicing its opposition to the Centre’s decision to offload 5 per cent in Neyveli Lignite Corporation (NLC) and later expressing a desire to acquire this stake. From a public policy framework, the State Government is well within its rights to acquire the stake that the Centre plans to divest. Nothing prevents it from bidding for the promoter’s (Centre’s) shares offloaded through the stock exchange route, which the Securities and Exchange Board of India (SEBI) had devised specifically for meeting the prescribed minimum public float requirement (10 per cent in listed PSUs). That said, there is no case for according any preferential status to the State Government either in terms of price or the quantity of shares to be offloaded in its favour. The latter must outbid other investors in a competitive auction if it is to acquire the entire quantity on offer, so that the Centre gets a fair return on its original investment.

True, the above transfer from the Centre to a State Government may not comply in spirit with the objective of SEBI’s minimum public shareholding norm – which is meant to ensure a certain degree of liquidity for a company’s shares in the secondary market. But the Centre certainly cannot complain on this count, considering its own record of having got institutions such as the Life Insurance Corporation to pick up the bulk of shares offloaded in divestment auctions of ONGC or Hindustan Copper. In the present case, the Tamil Nadu Government, far from being reluctant as the state-owned financial institutions were, is more than willing to buy the 5 per cent that the Centre wants to sell in NLC. The Centre, therefore, has no moral or financial case to deny the Tamil Nadu Government the opportunity to bid for the proposed offer-for-sale of NLC shares. Therefore, the fact that it will not lead to the desired level of public float or a genuinely dispersed shareholding structure cannot be used to disallow the State Government from acquiring the stake the Centre intends to shed in NLC.

Having said this, one can question the wisdom of the Tamil Nadu Government spending close to Rs 500 crore for this stake. Surely, this amount is better spent in building schools and improving public hospitals in the State.

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