Axis Bank stake sale will fund higher PSU burden

fe Bureau Posted online: Friday, Jan 10, 2014 at 0000 hrs
New Delhi : Starved of capital receipts through the PSU disinvestment route and facing a shortfall in tax revenue, the government has set in motion plans to raise revenue through other options. The Cabinet Committee on Economic Affairs (CCEA) on Thursday approved a finance ministry plan to fast-track the sale of a part of government-held shares in Axis Bank, by deferring the implementation of a March 2012 decision to wind up SUUTI, the firm through which the government holds shares in the private bank.

But things are not really shaping up for the finance ministry. While the largest disinvestment plans — Coal India, IndianOil and BHEL — aren’t making any headway, the ministry’s demand for special dividends have also received lukewarm response from even some of the cash-rich ones like Coal India. The Cabinet also decided on Thursday to refund spectrum fees amounting to R11,324 crore to state-run telcos BSNL and MTNL for surrendering 4G radio waves bought in 2010, adding to the finance ministry’s woes, even though the disbursal of these amounts can be postponed to next fiscal.

Through SUUTI, the government holds 20.7% in Axis Bank, 11.32% in ITC and 8.21% in Larsen & Toubro (L&T). At current market prices, these stakes are worth around R47,000 crore.

The current plan is to sell government’s 12-13% stake in Axis Bank (which could fetch around Rs 7,200 crore), although sale of stakes in the other two companies — ITC and L&T — could also be considered later, sources said. The government is unlikely to opt for the competitive bidding route for the these stake sales and the offers would likely be restricted to class of buyers like Life Insurance Corporation, State Bank of India or other PSU banks, the sources added.

The winding up of SUUTI and transferring its assets to the proposed National Asset Management Company (NAMC) as was planned earlier would have slowed the stake sale at a time the government is keen to shore up resources to meet the fiscal deficit target of 4.8% of GDP. Once the NAMC is created, as per the March 2012 Cabinet decision, it was in 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 to put a planned 5% stake sale on hold. Heavy industries minister Praful Patel said on Thursday that no decision had been taken so far regarding BHEL, which is considering a special dividend to the government in place of a stake sale.

The biggest disappointment has been Coal India, from which the Centre was planning to raise about Rs 20,000 crore through a 10% stake sale. Its unions have vehemently opposed any sort of a stake sale even after the government cut down its stake sale plan to 5% from 10% planned in the Budget. The likelihood of any disinvestment this year in CIL in highly unlikely and government is looking for a special dividend of at least Rs 9,000 crore from the company if the disinvestment does not happen. According to sources board will meet on January 14 to decide on the special dividend.

BSNL had paid Rs 6,724.51 crore as 4G spectrum fee while the amount for MTNL was about Rs 5,700 crore.