In what would confirm the government?s intentions for the new asset management company formed out of stakes that the government-owned entity SUUTI holds in some firms, the department of disinvestment will be represented on the AMC?s board. The government will rope in a chief operating officer for the AMC from the corporate world.
The idea is to leverage these stakes and mobilise funds from banks to buy government stakes in PSUs when the disinvestment plans are going haywire due to lack of investor interest. The AMC could sell the stakes on profit when market conditions improve.
A government official said that for the AMC?s smooth functioning, three departments in the finance ministry ? economic affairs, financial services and disinvestment ? need to be on its board.
SUUTI owns 11.5% stake in ITC, 23.57% in Axis Bank and 8.27% in Larsen & Toubro.
The finance ministry has finalised the names of the government nominees on the AMC?s board. These include joint secretary (capital markets) Thomas Mathew, additional secretary (disinvestment) Sidhartha Pradhan and additional secretary (financial services) Sunil Soni.
The ministry will also retain KN Prithviraj the administrator of SUUTI for this new company.
An official added that government plans to rope in a professional from the corporate world for the post of chief operating officer to manage the company. The board is likely to be constituted by May end.
The Cabinet Committee on Economic Affairs on March 24 gave its approval to the finance ministry?s proposal to dismantle SUUTI and transfer its sizeable assets under management to a new entity.
A finance ministry official, however, said the Cabinet had given approval only for the transfer of shares with SUUTI to an asset management company and had made no decision on pledging the shares with banks.
?What the (asset management) company will do with the shares will be decided by the board of the company. The Cabinet need not take a call on that,? he said, speaking on condition of anonymity.
The official further added, ?The government will keep R2,000 crore in a separate bank account to take care of the existing liabilities of SUUTI, while the remaining assets will be leveraged to borrow from banks for buying government stakes in PSUs.?
SUUTI was formed to oversee the assured-return plans of the erstwhile Unit Trust of India, which was bifurcated after running into financial troubles in 2001. The government aims to raise R30,000 crore through disinvestments in 2012-13. It was able to raise only around R14,000 crore against a target of R40,000 crore this fiscal.
