Latest News by Ashok Hindocha(M-9426201999)-PSU-News

Plans to sell small stakes await new govt
2The Telegraph, May4th, 2009
JAYANTA ROY CHOWDHURY & R. SURYAMURTHY

New Delhi, May 3: The department of disinvestment is working on a plan to sell small stakes of the government in some public sector companies.

The move, subject to the approval of the new government, will help the companies mop up funds for investment. Moreover, the entry of blue-chip PSUs will pep up the stock market, which has been clawing its way up after a dry spell of over six months.

According to officials, the government will continue to hold majority stakes in the firms. The officials said they were expecting a string of public issues over the next 18 months. The companies will be divesting small portions to raise money for themselves as well as for the National Investment Fund formed to implement social projects and revive sick PSUs.

“This will happen as the stock market rebounds, which we expect from August. Sales before that would be disastrous in terms of pricing and no political leadership will allow that,” the officials said.

The new government will look to invest in infrastructure and social sector projects to revive the economy. Hence, it may go ahead with some of the divestment proposals soon after assuming office, the officials said. It may consider divestment in companies such NHPC, Oil India, Coal India, RITES, BSNL, Air India, Hindustan Fertiliser Corporation, Fertiliser Corporation of India, Konkan Railway Corporation and the Indian Telephone Industry.

Of the proposed sales, the big one is BSNL’s flotation. If the government is able to convince the unions, it can dilute up to 10 per cent. Officials say shares with face value of Rs 10 can command around Rs 300 as premium, and the sale can rake in up to Rs 15,000 crore.

“If the go-ahead comes for all the issues that we are talking about, we can earn up to Rs 25,000 crore,” said the officials. The NHPC issue is also expected to garner about Rs 3,000 crore. Air India can float an IPO only after it has managed to get funds from the government.

The Congress-led UPA government’s divestment plans have not been received well by the Left and key allies such as the DMK. Stake sales in Neyvelli Lignite, Nalco, Power Finance Corporation, Tungabhadra and NMDC were stalled in July 2006 after Prime Minister Manmohan Singh succumbed to pressure from the allies.

However, the finance ministry has always maintained that it is necessary to sell small stakes in PSUs to undertake social sector projects.

In their manifestoes, the political parties are speaking in various voices on divestment.

“These stake sales or even issue of fresh equity helps unlock the real value of the firms which also become much more accountable once they have to perform under the scrutiny of the market,” officials said.

They said none of the public offer plans would dilute equity to the extent where there was any danger of shareholders being able to take over the company. “There will be no dilution of equity in any PSU where significant stake is already with the public.”

However, officials said the agenda would certainly be junked or curtailed if a Left led third front came to power or if a Congress led alliance had to depend heavily on Left support. The CPI (M) and the CPI have made it clear that there would be a complete halt to the disinvestment of profitable and potentially viable PSUs.

While the Congress manifesto said “Indian people have every right to own part of the shares of public sector companies, while the government retains the majority shareholding, the BJP, which had undertaken some big ticket stake sale, was conspicuously silent on the subject. Though BJP leaders said if elected, it could go ahead with a far more abmitious and aggressive disinvestment programme.

But, even if the Left were left out in the cold, a Congress led government with a new ally in Mamata Banerjee's Trinamool Congress, would also have to face up to opposition to its disinvestment agenda. Trinamool has already spoken out gainst disinvestment of public sector enterprises, and expressed the need strengthen them.

The economic compulsion could force the new political combination to rethink on the stand taken in the manifesto. However, the hard realty is that the fiscal deficit has widened to 6 per cent of the GDP and the Centre's market borrowing have crossed the Rs 3,00,000 crore mark in fiscal 2008-09, against the initial projection of Rs 1,00,571 crore.

These figures necessiates capital sales to bring down the huge debt mountian which would otherwies build up if the government goes ahead with a nother fiscal stimulus, which many say is in the offing.