Govt planning new ETF with SUUTI, PSU stakes

Aug 18 2014, 01:12 IST
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A final decision on the plan is yet to be taken by finance minister Arun Jaitley. A final decision on the plan is yet to be taken by finance minister Arun Jaitley.
SummaryClosed-ended fund to invest in Axis Bank, ITC, L&T & PSUs

While last year the Centre raised about R5,600 crore by sale of a chunk of its shares in Axis Bank held through SUUTI, it is eyeing a mop-up of R6,500 crore this year by launching an exchange-traded fund (ETF) based on a basket of its equities in some private and government firms.

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Sources familiar with the matter told FE that the finance ministry is evaluating the option of asking an investment banker to launch a closed-ended ETF on its behalf. The proposed fund will invest in stocks of Axis Bank, Larsen and Toubro (L&T) and ITC (two other private companies where the government holds shares through SUUTI) and a clutch of central PSUs, the sources said.

A final decision on the plan is yet to be taken by finance minister Arun Jaitley.

If the plan materialises, the government would end up raising more than the budgeted R 5,000 crore from sale of its shares in companies held through SUUTI in FY15. Last year's sale of 9% in Axis Bank was through the offer-for-sale route and selling SUUTI stakes in this manner again was also under consideration, the sources said. They, however, indicated that there were ‘some concerns’ regarding the use of this route and ETF looked a better alternative.

Analysts said the Centre could have easily gone ahead with a plan to exit from the three private firms where it has no business to stay invested in, as none of them is involved in any area of strategic interest to it. A complete exit from the firms could fetch the government close to R54,000 crore at current market prices, much higher than the budgeted PSU disinvestment target of R43,425 crore for this fiscal.

This could have indeed come handy to the government, which has set an ambitious target to reduce the fiscal deficit to 4.1% of the GDP for FY15, even as the projected net tax revenue growth of 16.9% looks difficult to achieve and unpaid subsidy bills from last year are a whopping R1 lakh crore.

The sources mentioned above, however, argued that the government selling its SUUTI stake in ITC could lead to British American Tobacco (BAT) acquiring a majority in the company ‘without paying a premium’.

Also, they said, a substantial rise in the PSU index over the past year would make the proposed ETF attractive to investors.

Analysts said the

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