Govt strikes gold with disinvestment plan
3 Dec 2012 11:37 PM GMT
The Opposition may call it the selling of family silver, but the government has struck gold. The disinvestment plan of the UPA government has started off with a bang.
The government has moped-up about Rs 808 crore by selling 5.58 per cent of its stake in Hindustan Copper. It will further dilute 4.1 per cent stake in the public sector unit (PSU) in the second tranche to bring down its holding to 90 per cent. Initially, the government had offered 4 per cent of its shares at Rs 155 apiece in the first tranche, but the response was so overwhelming that it allowed the entire oversubscription to be absorbed.
This amazing response has now given hopes to the government that it will be able to meet the budget target of raising Rs 30,000 crore from stake sale in PSUs in the current fiscal and keep the fiscal deficit at 5.3 per cent. Next in line is the dilution of 10 per cent stake in the iron ore miner National Mineral Development Corporation (NMDC) that would fetch about Rs 7,000 crore.
Then will follow the divestment of 10 per cent stake in Oil India and 9.5 per cent in National Thermal Power Corporation (NTPC). The Government expects to earn Rs 13,000 crore from the NTPC disinvestment.
In a bid to raise the overall valuation of the power company, the government has given back three coal blocks which were taken away for delay in developing them.
The blocks will help the company generate 8,500 MW of electricity and meet its fuel requirement.
The disinvestment process will continue till March with the auction of government’s minority stake in PSUs - including 12.15 per cent in National Aluminium (NALCO) and 9.33 per cent in Metals and Minerals Trading Corporation (MMTC)- taking place every month. This month-by-month disinvestment plan seems to be a dexterous move by the government. Every month a disinvestment takes place, it will send a message to the investors that the UPA government is serious about reforms and the market will respond positively.
Those who may get left out in the initial offering would reapply and would be willing to pay a mild premium over the previous bid.
That way the government expects to create a larger pool of engaged investors and average out the price at a higher level than the initial offering. The discount offer also is an intelligent move to attract investors and ensure that the disinvestment plan does not go awry this time.
The main credit to the astonishing start of the disinvestment process should, however, go to the big ticket reforms - FDI in retail and aviation - that reignited investor confidence and revved up the market, creating conditions for the success of the Hindustan Copper’s share auction. Earlier this fiscal, the government had to defer the Rs 2,500 IPO of Rashtriya Ispat Nigam Ltd (RINL) for the third time due to weak stock market conditions.
In the last fiscal too, the government could mop-up only Rs 14,000 crore through disinvestment, falling well short of its Rs. 40,000 crore target.
The government has so far approved disinvestment in nine companies. Hindustan Copper is the beginning of a good start.
Managing the increasingly unmanageable fiscal deficit is one of the main components of Finance Minister P Chidambaram’s multi-pronged strategy to nurse an ailing economy back to health, and project the government’s reformist image.
It is also a compulsion ahead of the 2014 Lok Sabha elections to reduce the intensity of the Opposition’s attack. The plan this time may just work, it seems.
The government has moped-up about Rs 808 crore by selling 5.58 per cent of its stake in Hindustan Copper. It will further dilute 4.1 per cent stake in the public sector unit (PSU) in the second tranche to bring down its holding to 90 per cent. Initially, the government had offered 4 per cent of its shares at Rs 155 apiece in the first tranche, but the response was so overwhelming that it allowed the entire oversubscription to be absorbed.
This amazing response has now given hopes to the government that it will be able to meet the budget target of raising Rs 30,000 crore from stake sale in PSUs in the current fiscal and keep the fiscal deficit at 5.3 per cent. Next in line is the dilution of 10 per cent stake in the iron ore miner National Mineral Development Corporation (NMDC) that would fetch about Rs 7,000 crore.
Then will follow the divestment of 10 per cent stake in Oil India and 9.5 per cent in National Thermal Power Corporation (NTPC). The Government expects to earn Rs 13,000 crore from the NTPC disinvestment.
In a bid to raise the overall valuation of the power company, the government has given back three coal blocks which were taken away for delay in developing them.
The blocks will help the company generate 8,500 MW of electricity and meet its fuel requirement.
The disinvestment process will continue till March with the auction of government’s minority stake in PSUs - including 12.15 per cent in National Aluminium (NALCO) and 9.33 per cent in Metals and Minerals Trading Corporation (MMTC)- taking place every month. This month-by-month disinvestment plan seems to be a dexterous move by the government. Every month a disinvestment takes place, it will send a message to the investors that the UPA government is serious about reforms and the market will respond positively.
Those who may get left out in the initial offering would reapply and would be willing to pay a mild premium over the previous bid.
That way the government expects to create a larger pool of engaged investors and average out the price at a higher level than the initial offering. The discount offer also is an intelligent move to attract investors and ensure that the disinvestment plan does not go awry this time.
The main credit to the astonishing start of the disinvestment process should, however, go to the big ticket reforms - FDI in retail and aviation - that reignited investor confidence and revved up the market, creating conditions for the success of the Hindustan Copper’s share auction. Earlier this fiscal, the government had to defer the Rs 2,500 IPO of Rashtriya Ispat Nigam Ltd (RINL) for the third time due to weak stock market conditions.
In the last fiscal too, the government could mop-up only Rs 14,000 crore through disinvestment, falling well short of its Rs. 40,000 crore target.
The government has so far approved disinvestment in nine companies. Hindustan Copper is the beginning of a good start.
Managing the increasingly unmanageable fiscal deficit is one of the main components of Finance Minister P Chidambaram’s multi-pronged strategy to nurse an ailing economy back to health, and project the government’s reformist image.
It is also a compulsion ahead of the 2014 Lok Sabha elections to reduce the intensity of the Opposition’s attack. The plan this time may just work, it seems.
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