NEW DELHI: The finance ministry has ruled out any more follow-on offers of state-run companies, saying it will instead rely on institutional placement or offer for sale to meet its . 30,000-crore disinvestment target for the current fiscal. The change in the ministry’s stance came after several public sector companies indicated that they would not prefer to raise fresh equity in the current choppy markets.
“The disinvestment programme will be pursued mainly through institutional placement or offer for sale,” a finance ministry official said on condition of anonymity.
The Securities and Exchange Board of India had introduced institutional placement and offer for sale through the auction route as new methods of share sale in February.
“The glitches in the auction process will be sorted out before the disinvestment begins,” the official said, adding that the finance ministry is keen to launch the disinvestment drive early on in the fiscal to prevent any slippage in target.
The government managed to raise only about . 14,000 crore through disinvestment last fiscal against the budgeted . 40,000 crore. The shortfall contributed to the government’s failure in meeting its fiscal deficit target, which ballooned to 5.9% of GDP in 2011-12 against the budgeted 4.6%.
Disinvestment this year is expected to begin in June with the initial public offering of Rashtriya Ispat Nigam Ltd. The government plans to raise . 2,500 crore by selling 10% of its stake in the steel maker.
Stake sales in more profitable subsidiaries of listed companies may follow later. The Union Cabinet has already approved disinvestment in National Buildings Construction Corporation, Steel Authority of India, Hindustan Copper, Bharat Heavy Electricals Limited and Hindustan Aeronautics. Steel Authority of India could be the first of these companies to take the auction route. The government plans to offload 5% of its 85.8% stake in the company to raise nearly . 3,000 crore.
Following the Oil and Natural Gas Corporation’s share sale fiasco, the petroleum ministry wants the government to test the market with smaller issues before bringing to the market upstream company OilIndiaand oil marketer Indian Oil Corporation.
“It has been decided that we will first look at small stake sale as in the case of SAIL and BHEL, and if the response is good, we will put other big issues such as IOC,” the finance ministry official quoted above said.
The government plans to divest 10% of its stake in IOC, which could fetch about . 8,000 crore.
Shares in a host of companies where government holds more than 90% stake, such as MMTC Ltd, State Trading Corporation of India, Neyveli Lignite Corporation and Rashtriya Chemicals and Fertilizers will also be sold through institutional placement or offer for sale.
“This was guaranteed to happen as the two routes are faster unlike the FPO, which is time consuming,” said Jagannadham Thunuguntla, strategist and head of research at SMC Global Securities. “However, retail investors will lose out in this.”
The government has a range of options, including buyback and creating crossholdings among companies. It is also exploring the option of setting up an exchangetraded fund to sell stakes in staterun companies to get around the problem of volatility in stock prices of companies in which it has announced stake sales.