The government-owned Specified Undertaking of the Unit Trust of India (SUUTI) on Friday sold a 1.63% stake in blue-chip firm Larsen & Toubro (L&T) through a block deal to raise R2,100 crore, potentially opening a new window for the Centre to meet its FY17 disinvestment revenue target of R56,500 crore.
The transaction marks the beginning of sale of SUUTI holdings in a number of companies this year to offset a likely huge shortfall in the Centre’s target of raising R20,500 from strategic sales. The government owns shares in 51 companies through SUUTI. SUUTI’s prized holdings include Axis Bank, ITC and L&T. Prior to the block/bulk deal, SUUTI owned 8.32% in the technology and engineering major. This was the first block/bulk deal transaction undertaken by the Modi government to sell shares since it came to power in May 2014.
Department of Investment and Public Asset Management secretary Neeraj Kumar Gupta said that SUUTI offered 1.5% of its equity stake in L&T with a greenshoe option of retaining another 1.5% to absorb additional demand. When asked, Gupta confirmed that state-owned Life Insurance Corporation, a major investor in government’s disinvestment programme, did not participate in the deal as it probably didn’t have headroom to further invest in the company. Foreign institutional investors, domestic institutional investors, mutual funds and banks participated in the L&T block deal. The L&T scrip ended Friday 1.78% lower at R1,418.90 on the BSE.
With the L&T transaction, the Centre has raised about R24,000 crore so far in the current fiscal or 42% of FY17 disinvestment target. Besides buyback of shares by PSUs, which contributed more than half of the disinvestment revenue so far this year, planned stake sales via a new exchange-traded fund, offer for sales in a number of PSUs, IPOs and likely SUUTI stake sales in more firms, would help achieve the disinvestment revenue target for FY17.
Dilution of the SUUTI stake in L&T indicates that the Centre no longer considers these holdings strategic and will likely exit from such companies gradually, boosting its non-debt capital receipts this year as well as next year, when it would scale up development expenditure ahead of the general election in 2019.