The Centre may raise Rs 5,000 crore by selling its shares in the public sector as well as in private companies through an Exchange Traded Fund (ETF) in the current fiscal, sources told FE. “The proposed new ETF will serve as an additional mechanism for the government to monetise its shareholdings in those CPSEs that eventually form part of the ETF basket,” the department of investment and public asset management (DIPAM) said, inviting applications from asset management companies to manage the fund.
The new ETF could be launched as a new fund offer (NFO) followed by further fund offer (FFO)/tap mechanism/tranche or in other additional offering which the government may deem fit to launch, it said.
The government would provide discount for different investors in the form of a suitable mix of upfront and back-end loyalty discount. Besides some blue chip CPSEs, the Centre could pool in shares owned by it in private firms such as Tata Communications, IDFC and shares held in 51 companies through Specified Undertaking of Unit Trust of India (SUUTI ). SUUTI’s prized holdings include Axis Bank, ITC and Larsen and Toubro.
The proceeds from disinvestment via ETF would complement the government’s strategy to mobilise funds by selling government shares through offer for sale (OFS), initial/follow-on public offers, institutional placement programme and strategic sales.
The Centre aims to targets Rs 36,000-crore revenue from minority stake sales in CPSEs in FY17. Another Rs 20,500 crore would be raised from strategic stake sales in PSUs. So far in the current fiscal, it has raised Rs 3,183 crore by selling shares in hydroelectricity company NHPC, Indian Oil and NTPC.
The Centre is in the process of raising Rs 12,000 crore soon by selling a portion of its holdings in Coal India, NMDC, Nalco and MOIL, back to these companies.
Using an extant CPSE ETF, which invested in a pool of 10 CPSE stocks, the government raised Rs 3,000 crore in FY14. The units of this ETF, managed by Goldman Sachs, saw capital appreciation of 40% in the first year after debuting on March 28, 2014, giving a positive narrative to officials to push for more ETFs.
ETF is seen as a safer bet to invest in equities compared to individual stocks which are vulnerable to fluctuations in the market. Besides retail investors, the Employees Provident Fund Organisation and pension funds under the National Pension System would be keen to invest in the Centre’s ETFs.