turn to take loans from banks leveraging its assets to buy government stakes in public sector companies. That would require Cabinet decisions for each purchases, causing delays the government can ill-afford at this juncture.
On Thursday, an empowered group of ministers headed by finance minister P Chidambaram deferred a decision on a 10% stake sale in IOC, following strong opposition from the petroleum ministry, which said that the oil marketing company’s share price has plunged around 50% since 2010 when the stake sale was first mooted. “It has been deferred,” oil minister M Veerappa Moily told reporters after the CCEA meeting. The EGoM on IOC disinvestment may meet again next week.
There are some strategic concerns over the sale of “SUUTI shares” as well. In the case of ITC, for instance, the stake sale can trigger a takeover attempt from ITC’s parent BAT, which has a 31.6% stake in the company. Given that domestic financial institutions hold 20.72% of ITC, BAT will be in the driving seat — FIIs that hold 15.26% in ITC may end up supporting BAT. In the case of L&T, which is making a foray into defence equipment, the government would in fact like to retain a stake as this could be useful in the future.
The government’s disinvestment plans are flattering — it has so far managed to garner just Rs 3,000 crore from stake sales in seven PSUs, including Power Grid Corporation, Hindustan Copper, National Fertilisers and MMTC, while the target for FY14 including Rs 14,000 crore from the sale of residual stakes in Hindustan Zinc and Balco is Rs 54,000 crore. The stake sales in Hindustan Zinc and Balco is stuck due to the ambiguity over whether Parliament’s approval is required for the sales.
Road shows for an IOC stake sale had received a very cold response among investors at promotional in the US, the UK and Singapore. At current share prices, an IOC disinvestment will not garner more than Rs 4,500 crore. Similarly, a sharp 30% drop in power and military equipment maker BHEL’s share price in the past one year has forced the Centre