In a note to the cabinet committee on economic affairs, the disinvestment department under the finance ministry has proposed that the part-disinvestment be undertaken when the three PSUs tap the market with the issue of fresh shares totalling 10% of their pre-issue paid-up capital. Post-disinvestment and IPO, the government’s stake in REC would drop to 81.22%, and in PGCIL and NHPC to 86.36% each.

The government expects to rake in at least Rs 1,651 crore from the proposed disinvestment in the three PSUs based on their book value as on March 31, 2006. While the book value of REC stood at Rs 53.78 a share on a face value of Rs 10, that of NHPC and PGCIL stood at Rs 14.40 and Rs 26.80, respectively.

The three PSUs are likely to raise Rs 2,881 crore by issuing 10% fresh shares through a book-building process. The PSUs will propose the price band for the offer, which would be approved by the power and finance ministries. As on March 31, 2006, the pre-issue paid-up capital of REC was Rs 785.6 crore, PGCIL was Rs 3,623.44 crore and NHPC was Rs 10,349 crore.

The money raised from selling government equity in the three PSUs will find its way to the National Investment Fund and provide resources to revive sick PSUs and towards the social sector. Government officials pointed out that this would put disinvestment back on the agenda after almost four years.

The Cabinet had, in November 2006, approved the power ministry’s proposal for a fresh issue of 20% shares in REC and up to 24% in PGCIL.

Later, in December, it approved NHPC’s IPO of up to 24%. No decision, however, was taken then on the disinvestment of government holdings in these public sector undertakings.