The government deserves some black marks for what?s being called the white paper on disinvestment. As hard up as it is, having managed to pick up just about R1,500 crore of its R40,000 crore disinvestment target for the year, it would not be right to ask one public sector unit to pick up a stake in a fellow PSU simply because it has some spare cash. The government is reportedly hoping to mop up some R13,500 crore through such cross-purchases; for instance, a CIL, which is sitting on around R50,000 crore of cash, or an NMDC, which has around R20,000 crore, could be asked to pick up a 5% stake in a SAIL with the government selling some of its shares. In these difficult times when the economy is slowing, cash flows could get squeezed and should be preserved to run the business. Or the money should be used to buy assets at home or overseas. It?s not meant to be frittered away buying stakes in irrelevant businesses; even if valuations seem attractive today because the markets have corrected, there are no basement bargains to be had. One is not sure who is advising the government, though one merchant banker claims to have been working with the authorities, but the proposal should be buried.

It?s true there are just about four months to go for the year to end, and fund managers aren?t really looking to buy equities anywhere in the world at a time when risk aversion is rising. So, it comes as no surprise that ONGC has decided to withdraw the share sale document, though the management is reluctant to tell us what exactly the plan of action is and when a new red herring prospectus will be filed. Since a follow-on offer typically is done at a discount to the market, it is understandable the government is holding back because the price of ONGC has now come off from the over R300 levels last November to around R250 currently. Indeed, it is hard to believe that it was just about a year ago when the Coal India IPO?the country?s biggest IPO?was such a big success and fetched the government around R15,000 crore. But then these are different times altogether, and although an IPO, say, of Hindustan Aeronautics, may attract some investment, the government won?t really rake in too much.

The government also reportedly wants to mop up some R23,000 crore by selling some equity holdings of the Specified Undertaking of the Unit Trust of India (SUUTI), which was formed in 2003 after UTI was recast. There has been talk, on and off, of the government monetising these stakes; SUUTI?s portfolio of stocks includes 11.6% stake in ITC, 8.3% in L&T and 23.4% in Axis Bank, with its total assets estimated at some R36,000 crore. If the government finds buyers who are willing to cough up a hefty premium, it can parcel out these stakes. There could be large industrial houses that want the stake, either in part or in its entirety, and even foreign institutional investors. Unless these are block deals at good valuations, the transactions would hurt the current price of the stock. The price of L&T, for instance, which was ruling at around R2,000 a year ago, has come off to almost half that level, while Axis Bank is quoting sharply below the R1,550 levels that it commanded in November last year. Even if valuations back then were somewhat stretched, it is not as though the India story is over, so those who want a chunk of these blue-chips must pay a fair price for them. Otherwise, it would further hurt the sentiment in the markets at a time when confidence is already low.

As for PSUs buying back shares, promoters are not allowed to surrender shares in an open market purchase, so perhaps the modus operandi will be to do a tender offer through a letter of offer to shareholders. If the price is not attractive, then smaller shareholders may not give up their shares, allowing the government to sell more shares. That may not be such a bad idea because, after all, companies do buy back shares when prices are low to reassure shareholders, provide a floor for the stock and boost the earnings by extinguishing the shares bought back. The other proposal being considered by the government is to sell surplus real estate, which is fine; it has property assets in companies like Tata Communications that can be sold. It is not that foreign investors have given up on

India; some of them are understood to have met the government to ask for a bigger quota in PSU disinvestments. However, the idea of disinvestment has also been to allow smaller shareholders to profit and the government should keep that in mind.

shobhana.subramanian@expressindia.com