"Pricing of the issues will reflect market conditions and the government will proceed with the disinvestment to raise the budgeted Rs 5,000 crore even if the markets are depressed," finance ministry sources said.

The pricing will not be on the basis of any pre-conceived notions as has been the norm in the past, the sources said.

The officials said that all the departments involved were working overtime to begin the disinvestment process in September. The four companies which have been identified for disinvestment in the current fiscal include Gas Authority of India Limited (GAIL), Container Corporation of India (Concor), Videsh Sanchar Nigam Limited (VSNL) and Indian Oil Corporation (IOC).

The issues will be spaced out to avoid crowding, especially in the international market, sources said.

The changed approach toward disinvestmentis in sharp contrast to the wait-and-watch policy of the earlier governments. The endless wait for bullish sentiment and an appropriate price has often resulted in postponement of the disinvestment from one fiscal to the other.

The real dilemma before the government is either to delink the disinvestment process from the budget as advised by the Disinvestment Commission or be prepared to offload shares at a price which the market would accept.

Having decided not to delink the process of disinvestment from the budget for obvious reasons, the choice before the government is to divest shares at a price which the market would pay.

For example, the sources said, VSNL disinvestment was delayed for want of expected price. When the market was ready to pay Rs 1,150 -1,200 for the issue, the government insisted on Rs 1,500. In 1997, the same stock was sold at Rs 1000.

Similar was the case with Gas Authority of India (GAIL). Towards the end of 1997, GAIL shares was being traded in the range of Rs 125 to 160. Thegovernment had offers to disinvest at Rs 100-110 which it refused saying that it cannot sell cheaply. The GAIL scrip is now traded at around Rs 90. The IOC stocks having touched a yearly high of Rs 894 is now being traded at Rs 470.

The wait and watch attitude of the government is also responsible for substantial shortfall in realising the budget amount in the last couple of years.

INSIGHT
Market price versus real worth

The government seems to be under pressure to raise the budgeted Rs 5,000 crore through disinvestment. The decision to relate offer price of PSU shares to the current market price will, however, raise eyebrows. Current prices of IOC, GAIL, Concor and VSNL are 40 to 45 per cent below their high of 1997. The volume of shares traded during the last 10 days has been small. This makes it difficult to say if the current market price reflects their true worth.

It will be preferable to relate the offer price to the book value, reserves, earning potential and, of course, theirprice earnings ratio. The average market quotes of the past six months (based on daily high-low) could be used as a reference price. However, it is possible that the buyback announcement, considered imminent, will lift share prices overall in the coming weeks and boost select PSU equity prices.