Despite the need to bolster revenues to raise public spending while keeping budget deficits within projected levels, the Centre has decided not to aggressively front-load the sales of its stakes in companies this fiscal, and instead hit the market with a dozen or so issues in the pipeline only when it is free from great volatility.
This marks a shift from its earlier stance, that given the failures of recent years in meeting the disinvestment targets, these stake sales would be pursued with some alacrity that this year’s ambitious target of Rs 69,500 crore are not missed.
The government has only managed to raise R1,610 crore so far this year — from a 5% stake sale in the Rural Electrification Corporation (REC) in April. No other share sale has taken place, mainly due to volatility in the stock market at regular intervals, while some of the stocks, including that of ONGC, got hammered due to the lack of clarity on whether it would pick up the fuel subsidy tab from this year onwards on cooking gas and kerosene.
“We have built a pipeline… (and are) waiting for the market conditions to improve as investors won’t participate if there is volatility,” an official source said. Sources had said earlier that the government would like to have one big share sale — either that of ONGC or IOC — by July. Since the ONGC stock is ‘beaten’ down, chances are bright that the government would come out soon with a 10% stake sale in Indian Oil Corporation (IOC) that could fetch R9,300 crore at current prices.
The government is also expected to come out with the second tranche of an exchange traded fund (ETF) any time now to raise about R5,000 crore. The government used the ETF, which invested in a pool of 10 PSU stocks, to raise R3,000 crore in FY14. The ETF is considered less volatile than individual stocks.
Despite missing disinvestment targets in the last five years by a wide margin, the government has set FY16 target at R69,500 crore, of which R41,000 crore would come from 5-10% stake sale each in a clutch of public sector undertakings (PSUs). The remaining R28,500 crore would be raised from ‘strategic disinvestment’ that includes the sale of residual government stake in some private companies including Hindustan Zinc and Balco, privatisation of some loss-making as well as profit-making PSUs and the sale of a portion of SUUTI (Specified Undertaking of Unit Trust of India) stakes in companies, namely Axis Bank, ITC and Larsen and Toubro (L&T).
The government has already created a pipeline of PSUs for stake sales that could fetch R50,000 crore. They include NTPC, IOC, ONGC, Rastriya Ispat Nigam, Hindustan Aeronautics, NHPC, Power Finance Corporation, Dredging Corporation, MOIL, Nalco, BHEL and NMDC.The department of disinvestment (DoD)was doing five-six share sales annually, but with the enhanced target, it has to do at least double of that this year, sources said.
“We are gearing up the administrative capabilities to execute more issues this year,” one source said. It plans to use the recent relaxation given by the Sebi that offer for sales (auction) can be announced on Fridays, thereby leaving no time for speculators to beat down the stocks before it hits the market. This facility would be used on a case-to-case basis, sources said.
Earlier, the government had to inform the stock exchanges two trading days before the issue hit the market. Though the government has been exuding confidence during the final few weeks of the year that disinvestment target would be met, it could yet again miss the disinvestment target if stake sales are pushed in towards the fag-end of the year, leaving little time for execution, analysts said.
While share sales in PSUs are lagging behind, there is not much progress either on government stake sales in private companies including Hindustan Zinc, Balco, Tata Communications and IDFC.