Modi’s disinvestment push: After REC sale, government to take buyback route to meet Rs 80,000 crore target

By: | Updated: December 7, 2018 1:49 PM

Cabinet approval to the strategic sale of its nearly 53 percent stake in Rural Electrification (REC) to the Power Finance Corporation (PFC) will help the Modi government to move closer to its ambitious divestment target of Rs 80,000 crore and also meet the fiscal deficit target of 3.3 percent of GDP in FY19.

The government expects nearly Rs 18,000 crore to be added to the exchequer from the sale of stake in the PFC-REC deal.

Cabinet approval to the strategic sale of its nearly 53 percent stake in Rural Electrification (REC) to the Power Finance Corporation (PFC) will help the Modi government to move closer to its ambitious disinvestment target of Rs 80,000 crore and also meet the fiscal deficit target of 3.3 percent of GDP in FY19. The government expects nearly Rs 18,000 crore to be added to the exchequer from the sale of stake in the PFC-REC deal.

In the budget speech, Finance Minister Arun Jaitley had said there were opportunities to strengthen CPSEs through consolidation, mergers and acquisitions. “By these methods, CPSEs can be integrated across the value chain of an industry. It will give them capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders,” he had said.

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So far, nearly Rs 32,000 crore has come through disinvestment from minority share sale in CPSEs and follow on offer of exchange traded funds – CPSE ETF and Bharat-22. The government holds a divestment target of Rs 80,000 this fiscal.

The government has garnered Rs 15,000 crore through initial public offers (IPOs) of state-owned companies up till now.

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The government has identified 11 CPSEs for share buybacks. Bharat Heavy Electricals, Cochin Shipyard, National Aluminium Company, NLC India, Kudremukh Iron Ore Company and NHPC have already announced combined buybacks worth nearly Rs 4,400 crore in the previous one month.

According to several media reports, another tranche of Bharat 22 ETF and revival of Air India stake sale programme are in the pipeline.

Indian Oil and ONGC are also likely to consider share buybacks worth Rs 4,800 crore and Rs 4,000 crore, respectively, according to reports. In January this year, ONGC’s acquisition of HPCL helped the Modi government in not only meeting its FY18 divestment target but also surpassing the same.

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