PSUs’ Hands Will Not Be Forced In Share Buybacks: Disinvestment Secretary

The current fiscal will be challenging for the department of disinvestment. Despite the dismal show last year due to adverse market conditions and the failure to reach the target for divestment revenue, the department has lined up a slew of proposals for stake sales in public sector undertakings (PSUs) this fiscal, with a target to garner R30,000 crore through this route. The auction route — which began with ONGC’s stake sale late last fiscal — will be used for disinvestment in many PSUs this fiscal. In an interview with Himani Kaushik, disinvestment secretary Mohammad Haleem Khan outlines the agenda for 2012-13. Excerpts:
How have the PSUs responded to your proposals for disinvestment in this fiscal?
The guidelines issued by the department of public enterprise (DPE) and Sebi will encourage listing of companies. While DPE guidelines make it mandatory for large profitable PSUs to list their shares within a specified period of time, the market regulator mandates minimum public float for all listed entities. In fact, Sebi has recently said that the 2013 deadline for meeting the minimum public shareholding norm for listed companies will not be extended. All these things indicate that more and more companies would come under the government’s disinvestment programme. I think we could see more initial public offers (IPOs) by PSUs than follow-on public offers (FPOs) in the current year, given the market sentiments.
Which are the IPOs the government is planning to bring this year?
We expect to start the year with the IPO of Rashtriya Ispat Nigam (RINL) sometime in June. Immediately after that, Hindustan Aeronautics (HAL) would come out with a 10% stake dilution plan. A committee was looking into restructuring the HAL board both in terms of independent directors and the total number of board members. Also the business models of some of its business units are being revisited. I expect these processes to be completed in time to launch the offer in the second quarter of the current fiscal.
Which are the likely FPOs this year?
The ministry of steel has already floated the Cabinet note for divesting 10% government stake in SAIL. The Cabinet Committee on Economic Affairs (CCEA) is expected to take up the issue soon.
Looking at the ONGC auction that obviously did not elicit much investor interest, would you still consider auctions as a route for divesting government shares in PSUs?
In the case of ONGC, the biggest problem was lack of understanding and awareness of the guidelines and procedures of the offer for sale (OFS). The ONGC auction was perceived to be similar to an FPO while it was an improvisation of the so-called off-market deal in the private sector. I think it (the process) was not properly communicated (to potential investors).
Moreover, the problem was compounded by our decision to have more than one platforms to conduct the auction. We did not realise that when an investor puts money with a custodian, he has to bifurcate it for both the exchanges. Since we were trying the auction route for the first time, we also faced technical problems. But the auction process is efficient and it saves time. Going forward, we will carry it out only on one platform and also reduce the time of the auction so that any negative events that could scare away investors can be avoided.
Which are the PSUs likely to be put on the auction route?
If a company is eligible for auction, then we would rather go for auction than prospectus-based stake sale. Oil India (OIL) has been keen on the auction process for a long time. I have a strong feeling that whenever the OIL offer is made, it will be through the auction route. Companies like SAIL and Nalco and Neyveli Lignite can also be considered for auction. The timeline of these issues has not been decided yet.
Will the auction process be tweaked to make it more efficient?
Sebi is looking into the technical glitches encountered during the ONGC auction. Out of total bid for 54 crore shares, bids for 12 crore shares (or 28% of total bids) were rejected. The market regulator is looking into why this happened. There are a number of suggestion and we are also looking into it.
Could you explain the proposal for buyback of shares by companies?
Buyback of shares can be utilised by overcapitalised companies. Now, PSUs have to go to the government for restructuring their capital base. Buyback of government shares will allow PSUs to do that more easily. If they purchase shares from the market, their public holding may fall below the prescribed minimum of 10% and they may have to delist.
Also, PSUs with excess cash are allowed to invest in bank deposits and mutual funds. This would enable cash-rich PSUs to rework their treasury management practices and cash in on market demand. In case of a buyback, it has to be a decision of the company, not the disinvestment department. Apart from this, the department is working on facilitating the government institutions and companies interested in buying government stake in other PSUs . The detailed guidelines are expected to be put out soon by the DPE.