Govt crosses budget target for disinvestment, courtesy ETFs

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Updated: Mar 23, 2019 7:11 AM

On Friday, it mopped up Rs 10k cr from CPSE ETF and Rs 14.5k cr via PFC-REC deal.

A large chunk of the disinvestment receipts in the last few years came from cash-rich PSUs purchasing government stakes in other state-run firms or via mechanisms like buybacks.

For the second year in a row, the Centre has surpassed its Budget targets for disinvestment. “Against a target of Rs 80,000 crore for disinvestment for the current year, the receipts have touched Rs 85,000 crore today,” finance minister Arun Jaitley tweeted on Friday. Last year, the receipts from assorted deals to monetise government stakes in public and private companies touched a record of Rs 1 lakh crore, beating the original Budget estimate of Rs 72,500 crore and dwarfing the receipts of the previous years when the targets were missed by wide margins.

However, analysts doubted the efficacy of many of the deals in meeting the stated objective of disinvestment, let alone privatisation. A large chunk of the disinvestment receipts in the last few years came from cash-rich PSUs purchasing government stakes in other state-run firms or via mechanisms like buybacks. Though these transactions have boosted the government’s non-debt capital receipts, they haven’t actually reduced government ownerships of businesses it should ideally have no role in.

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While LIC bailed out the government when many offers for sales (OFS) drew lukewarm response from private firms and institutional and retail investors in the previous years, ONGC shelled out some Rs 37,000 crore to the government in FY18 to purchase a majority stake in HPCL. On Friday, PFC said it has entered into an agreement with the Centre to buy the latter’s 52.6% stake in REC for Rs 14,500 crore. PFC bought the stake at Rs 139.5 per share, 6.4% lower than the REC’s closing price of Rs 148.40 per share on March 19.

Apart from the PFC-REC deal, a robust pipeline of transactions, including a series of ETFs and about half a dozen buybacks by PSUs, ensured that the target was exceeded despite the difficult market conditions.

On Friday, the Centre also mopped up Rs 10,000 crore from the fourth further fund offer (FFO) of the CPSE ETF, 2.8 times of the base offer size of Rs 3,500 crore.

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The receipts from four ETF issues fetched Rs 45,730 crore or 54% of this fiscal’s total disinvestment receipts.
The ETF mop-up this time around is the highest than Rs 14,500 crore in FY18 and Rs 8,500 crore in FY17. The government reckons that given the volatile market conditions and the low appetite for individual stocks, the ETF route attracted more retail and institutional investors. Another Rs 12,000 crore was garnered from a bunch of buybacks such as by Oil & Natural Gas Corp, Indian Oil Corp, Coal India, NMDC, Nalco, BHEL and NLC.

In the volatile market consitions of this year, the only offer for sale (OFS) was from Coal India. A 3.19% stake sale in Coal India fetched the Centre Rs 5,218 crore. The Centre also collected a handsome Rs 5,379 crore by selling a portion of the Specified Undertaking of Unit Trust of India (SUUTI) stake in Axis Bank.

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About Rs 2,200 crore were garnered from deals such as IPOs of RITES, Ircon International, Mishra Dhatu and Garden Reach Shipbuilders; sale of HSCC (India) to another PSU (NBCC) and monetisation of “enemy shares”.
For FY20, the government has set another hefty disinvestment revenue target of Rs 90,000 crore. The likely transactions next year include sale of the Centre’s 63.8% stake in SJVN to NTPC, a new ETF, about 10 IPOs, a clutch of offer for sales, buybacks and monetisation of CPSEs’ asset.

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