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FE Editorial : Defensive divestment

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SummaryWhile the government appears to have made some headway in its disinvestment drive with the Cabinet clearing a 10% stake-sale in mining PSU NMDC—this can fetch Rs.7,000 crore—what’s not clear is why it continues to be on the defensive about this.

Govt can get R4 lakh cr by coming down to 51%

While the government appears to have made some headway in its disinvestment drive with the Cabinet clearing a 10% stake-sale in mining PSU NMDC—this can fetch R7,000 crore—what’s not clear is why it continues to be on the defensive about this. Postponing the IPO of Rashtriya Ispat Nigam Limited for the third time this year is a good example of this. Even if you don’t agree with the government philosophy of not privatising—this is where the real efficiencies come from—there is a lot of money to be got from just disinvestment. The total market capitalisation of 59 listed central PSUs today is around R15.8 lakh crore, so were the government to reduce its shareholdings to 51%—it would still be in majority control—this would still fetch it over R4 lakh crore. If the government wanted to be even more cautious and go down to a 75% stake—this would ensure no one could get enough stock to oppose a special resolution—it could still get over R1 lakh crore.

And this, by the way, does not include the R40,000+ crore that can be got from the sale of shares held by SUUTI—of Axis Bank, L&T and ITC. While the R4 lakh crore figure includes telecom PSU MTNL, the government would earn a lot more by simply getting both MTNL and BSNL give up their more valuable spectrum—that’s assuming the government doesn’t want to turn them around by handing over management control. Neither has done much with the 3G/BWA spectrum they have and, based on the price they paid, this is worth R29,000 crore. In addition, the 900 MHz spectrum they hold is worth another R39,000 crore or so. Perhaps the finance ministry needs to convince other constituents of the government that more aggressive disinvestment will not lower government control over PSUs.

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