It is also contended that the functioning of many public sector units (PSUs) has been characterized by low productivity, unsatisfactory quality of goods, excessive manpower utilization, inadequate human resource development and low rate of return on capital. For instance, between 1980 and 2002, the average rate of return on capital employed by PSUs was about 3.4% as against the average cost of borrowing, which was 8.66%. Disinvestment (or divestment) of the PSUs has therefore been offered as one of the solutions in this context

Disinvestment involves the sale of equity and bond capital invested by the government in PSUs. It also implies the sale of governments loan capital in PSUs through securitization. However, it is the government and not the PSUs who receive money from disinvestment.

The fixation of share/bond price is an important aspect of disinvestment. Now, the Disinvestment Commission determines the share/bond price. Disinvested shares are listed, quoted and traded on the stock market. Indian and foreign financial institutions, banks, mutual funds, companies as well as individuals can buy disinvested shares / bonds.

Disinvestment is generally expected to achieve a greater inflow of private capital and the use of private management practices in PSUs, as well as enable more effective monitoring of management discipline by the private shareholders. Such changes would lead to an increase in the operational efficiency and the market value of the PSUs. This in turn would enable the much needed revenue generation by the government and help reduce deficit financing.

However, to date the market experience has been otherwise. The large national budgetary deficit on revenue account has been increasing. The government has not used the disinvestment proceeds to finance expenditure on capital account; i.e. the disinvestment policy has resulted in capital consumption rather than generation. Administrative costs of the disinvestment process have also been unduly high.

The actual receipts through disinvestment have often fallen far short of their target (see figure). During the period 1991-92 to 2002-2003, the government had targeted the mobilization of about Rs. 78,300 crores through disinvestment, but it could actually mobilize only Rs. 30,917 crores.

Problems associated with DisinvestmentA number of problems and issues have bedevilled the disinvestment process. The number of bidders for equity has been small not only in the case of financially weak PSUs, but also in that of better-performing PSUs. Besides, the government has often compelled financial institutions, UTI and other mutual funds to purchase the equity which was being unloaded through disinvestment. These organizations have not been very enthusiastic in listing and trading of shares purchased

by them as it would reduce their control over PSUs. Instances of insider trading of shares by them have also come to light. All this has led to low valuation or under pricing of equity.

Further, in many cases, disinvestment has not really changed the ownership of PSUs, as the government has retained a majority stake in them. There has been some apprehension that disinvestment of PSUs might result in the �crowding out� of private corporates (through lowered subscription to their shares) from the primary capital market

An important fact that needs to be remembered in the context of divestment is that the equity in PSUs essentially belongs to the people. Thus, several independent commentators have maintained that in the absence of wider national consensus, a mere government decision to disinvest is not enough to carry out the sale of people�s assets. Inadequate information about PSUs has impeded free, competitive and efficient bidding of shares, and a free trading of those shares. Also, since the PSUs do not benefit monetarily from disinvestment, they have been reluctant to prepare and distribute prospectuses. This has in turn prevented the disinvestment process from being completely open and transparent.

It is not clear if the rationale for divestment process is well-founded. The assumption of higher efficiency, better / ethical management practices and better monitoring by the private shareholders in the case of the private sector � all of which supposedly underlie the disinvestment rationale � is not always borne out by business trends and facts.

Total disinvestment of PSUs would naturally concentrate economic and political power in the hands of the private corporate sector. The US economist Kenneth Galbraith had visualized a role of �countervailing power� for the PSUs. While the creation of PSUs originally had economic, social welfare and political objectives, their current restructuring through disinvestment is being undertaken primarily out of need of government finances and economic efficiency.

Lastly, to the extent that the sale of government equity in PSUs is to the Indian private sector, there is no decline in national wealth. But the sale of such equity to foreign companies has far more serious implications relating to national wealth, control and power, particularly if the equity is sold below the �correct� price!

If the disinvestment policy is to be in wider public interests, it is necessary to examine systematically, issues such as - the �correct� valuation of shares, the �crowding out� possibility, the appropriate use of disinvestment proceeds and the institutional and other prerequisites.

Evolution of the Disinvestment Policy

1. The Statement of Industrial Policy dated July 24, 1991 stated that in the case of selected enterprises, part of Government holdings in the equity share capital of these enterprises will be disinvested in order to provide further market discipline to the performance of public enterprises.Thus, disinvestment of the Government’s equity in CPSUs (Central Public Sector Units) started in 1991-92, when minority shareholding of the Central Government in 30 individual CPSUs was sold to selected financial institutions (LIC, GIC, UTI) in bundles, in order to ensure that along with the attractive shares, the not so attractive shares also got sold. Subsequently, shares of individual CPSUs were sold and the category of eligible buyers was gradually expanded to include individuals, NRIs and registered FIIs. By 1997, sale through the GDR route was also initiated and MTNL (1997-98), VSNL (1998-99) and GAIL (1999-2000) all used the opportunity to access the GDR market. The number of listed CPSUs on domestic stock exchange stood at 42 as on 31.3.2006.

2. The policy on disinvestment has evolved through statements of Finance Ministers in their budget speeches. In the interim budget 1991-92, it was announced that the Government would disinvest up to 20 per cent of its equity in selected public sector undertakings in favour of mutual funds and financial or investment institutions in the public sector to broad-base the shareholding, improve management, enhance availability of resources for these CPSUs and yield resources for the exchequer. 3. The Rangarajan Committee recommended in April 1993 that the percentage of equity to be disinvested should be generally under 49% in industries reserved for the public sector and over 74% in other industries. As per statement of Industrial Policy dated 24th July 1991 the following industries were proposed to be reserved for the public sector:- Arms and ammunition and allied items of defence equipment, Defence aircraft and warships. Atomic Energy Coal and lignite Mineral oils Mining of iron ore, manganese ore, chrome ore, gypsum sulphur, gold and diamond Mining of copper, lead, zinc, tin, molybdenum and wolfram Minerals specified in the Schedule to the Atomic Energy (Control of Production and Use) Order, 1953 Railway transport 4. In the budget speech of 1996-97, the proposal to establish a Disinvestment Commission was announced. It was also stated that the revenues generated from such disinvestment will be utilised for allocation to education and health sectors and for creating a fund to strengthen CPSUs5. The Public Sector Disinvestment Commission was established on 23rd August 1996, for a period of three years, as an independent, non-statutory, advisory body with Shri G.V. Ramakrishna as full time Chairman, four other Members (part time) and a full time Member Secretary. 72 CPSUs were

referred to the Commission. Subsequently, 8 cases were withdrawn. The Commission submitted 12 reports for 58 CPSUs, recommending strategic sale in 28 cases, trade sale in 8 cases, closure of 4 units, equity sales in 6 cases and no change (disinvestment deferred) in 12 cases. The Commission did not take up examination of the cases of six CPSUs, which were registered with the Board for Industrial & Financial Reconstruction (BIFR). The tenure of the Chairman of the Commission was extended till 30th November 1999.

6. In the budget speech of 1998–99, it was announced that, in the generality of cases, the Government’s shareholding in CPSUs would be brought down to 26%. In the case of CPSUs involving strategic considerations, the Government would continue to retain majority shareholding. The interest of workers would be protected in all cases.

7. In the budget speech of 1999-2000, it was announced that Government's strategy towards the CPSUs would continue to encompass a judicious mix of strengthening strategic units, privatising non-strategic ones through gradual disinvestment or strategic sale and devising viable rehabilitation strategies for weak units.

8. On 16th March 1999, the Government classified the CPSUs into strategic and non-strategic areas for the purpose of disinvestment. It was decided that the strategic CPSUs would be those functioning in areas of:

o Arms and ammunition and the allied items of defence equipment, defence aircrafts and warships

o Atomic energy (except in the areas related to the generation of nuclear power and applications of radiation and radio-isotopes to agriculture, medicine and non-strategic industries)

o Railway transport.

All other CPSUs were to be considered as being non-strategic. For the non-strategic CPSUs, it was decided that reduction of the Government’s shareholding to 26% would not be automatic and the manner and pace of doing so would be decided on a case-by-case basis on the following considerations: a) Whether the industrial sector required the presence of the public sector as a countervailing force to prevent concentration of power in private hands, and b) Whether the industrial sector required a proper regulatory mechanism to protect the consumer interests before Public Sector Enterprises were privatised.

9. It was also decided to establish a new Department for Disinvestment to systematize the policy approach to disinvestment and privatisation and to give a fresh impetus to this programme. The Department came

into being on 10th December 1999. 10. In the budget speech of 2000-2001, it was announced that the main elements of the Government’s policy were to restructure and revive potentially viable CPSUs; close down CPSUs which cannot be revivved; bring down Government’s shareholding in all non-strategic CPSUs to 26% or lower, if necessary; and fully protect the interests of workers. The receipts from disinvestment and privatisation will be used for meeting expenditure on social sectors, restructuring of CPSUs and for retiring public debt.

Reconstituted Public Sector Disinvestment Commission 11.

The Public Sector Disinvestment Commission was re-constituted on 24th July 2001 for a period of two years with Dr. R.H. Patil as Chairman (part time) along with four other Members (part time) and a full time Member Secretary. The then Ministry of Disinvestment had informed the Commission on 23rd January 2002 that all non-strategic CPSUs, including subsidiaries, but excluding IOC, ONGC and GAIL, stood referred to the Commission for it to prioritize, examine and make recommendations in the light of the Government policies articulated earlier on 16th March 1999 and the budget speeches of Finance Ministers from time to time. The Disinvestment Commissions in 25 reports submitted between February 1997 – March 2004 disinvestment through strategic sale in 59 cases; disinvestment other than strategic sale in 32 cases and closure was recommended in 4 cases. The term of the Commission was subsequently extended till 31st October 2004. The Commission ceased to exist from 1st November, 2004. 12. In the budget speech of 2001 – 2002, it was announced that CPSUs must be strengthened to compete and prosper in the new environment. A receipt of Rs. 12,000 crore was budgeted from disinvestment. Out of this, an amount of Rs. 7,000 crore was to be used for providing restructuring assistance to CPSUs, safety net to workers and reduction of debt burden and a sum of Rs. 5,000 crore for providing additional budgetary support for the Plan, primarily in the social and infrastructure sectors. This additional allocation for the Plan would be contingent upon realisation of the anticipated receipts. 13. The Government decided in September 2002 that CPSUs and Central Government owned cooperative societies (where Government’s ownership is 51% or more) should not be permitted to participate as bidders in the disinvestment of other CPSUs unless specifically approved by the Core Group of Secretaries on Disinvestment (CGD). In December 2002 on the basis of a proposal of the Department of Fertilizers, it was decided that Multi State Cooperative Societies under the Department of Fertilizers be allowed to participate in the disinvestment of fertilizer CPSUs including National Fertilizers Limited. 14. In a suo motu statement made in both Houses of Parliament on 9th December, 2002, by the then Minister of Disinvestment, the Government reiterated the policy as “The main objective of disinvestment is to put national resources and assets to optimal use and in particular to unleash the productive potential inherent in our public sector enterprises. The policy of disinvestment specifically aims at:

Modernization and up gradation of Public Sector Enterprises Creation of new assets Generating of employment Retiring of public debt Government would continue to ensure that disinvestment does not result in alienation of national assets, which, through the process of disinvestment, remain where they are. It would also ensure that disinvestment does not result in private monopolies. In order to provide complete visibility to the Government’s continued commitment of utilisation of disinvestment proceeds for social and infrastructure sectors, the Government would set up a Disinvestment Proceeds Fund. This Fund would be used for financing fresh employment opportunities and investment, and for retirement of public debt. For the disinvestment of natural asset companies, the Ministry of Finance and the Ministry of Disinvestment would work out guidelines. The Ministry of Finance would also prepare for consideration of the Retiring of public debt Government would continue to ensure that disinvestment does not result in alienation of national assets, which, through the process of disinvestment, remain where they are. It would also ensure that disinvestment does not result in private monopolies. In order to provide complete visibility to the Government’s continued commitment of utilisation of disinvestment proceeds for social and infrastructure sectors, the Government would set up a Disinvestment Proceeds Fund. This Fund would be used for financing fresh employment opportunities and investment, and for retirement of public debt. For the disinvestment of natural asset companies, the Ministry of Finance and the Ministry of Disinvestment would work out guidelines. The Ministry of Finance would also prepare for consideration of the Cabinet Committee on Disinvestment a paper on the feasibility and modalities of setting up an Asset Management Company to hold manage and dispose the residual holding of the Government in the companies in which the Government’s equity has been disinvested to a strategic partner.” 15. The then Ministry of Disinvestment issued guidelines regarding Management-Employee Bids in Strategic Sale on 25th April 2003 to encourage and facilitate the participation of employee participation in strategic sales. 16. In the budget speech for 2003-04, the Government announced that details regarding the already announced Disinvestment Fund and Asset Management Company, to hold residual shares post disinvestment, would be finalized early in 2003-04

Current policy on disinvestment and programmes In May 2004, Government adopted the National Common Minimum Programme (NCMP), which outlines the policy of the Government with respect to the public sector. The relevant extracts of NCMP are: “The UPA Government is committed to a strong and effective public sector whose social objectives are met by its commercial functioning. But for this, there is need for selectivity and a strategic focus. The UPA is pledged to devolve full managerial and commercial autonomy to successful, profit-making companies operating in a competitive environment. Generally profit-making companies will not be privatized. All privatizations will be considered on a transparent and consultative

case-by-case basis. The UPA will retain existing “navratna” companies in the public sector while these companies raise resources from the capital market. While every effort will be made to modernize and restructure sick public sector companies raise resources from the capital market. While every effort will be made to modernize and restructure sick public sector companies and revive sick industry, chronically loss-making companies will either be sold-off, or closed, after all workers have got their legitimate dues and compensation. The UPA will induct private industry to turn around companies that have potential for revival. The UPA Government believes that privatization should increase competition, not decrease it. It will not support the emergence of any monopoly that only restricts competition. It also believes that there must be a direct link between privatization and social needs – like, for example, the use of privatization revenues for designated social sector schemes. Public sector companies and nationalized banks will be encouraged to enter the capital market to raise resources and offer new investment avenues to retail investors”

Proposals under Implementation

IPOs of Power Companies Three power companies, viz., Rural Electrification Corporation Limited (REC), Power Grid Corporation of India Limited (PGCIL) and National Hydro-electric Power Corporation Limited (NHPC), propose to make public offerings of equity equal to 10% each of their pre-issue paid-up equity capital. Government has decided on 8.2.2007 to piggy-back with an ‘Offer for Sale’ of 10%, 5% and 5% respectively out of its shareholding. The realisation based on book value has been estimated at Rs. 1651 crore. The actual realization is expected to be higher and would depend on the prevailing market condition. Brief on the Initial Public Offering of shares of Power Grid Corporation of India Limited (PGCIL) The Initial Public Offering (IPO of 57,39,32,895 shares of Power Grid Corporation of India Limited (PGCIL), consisting of an ‘Offer for Sale’ of 19,13,10,965 equity shares out of Governments shareholding and a fresh issue of 38,26,21,930 equity shares by the company was open for subscription from 10th September, 2007 to 13th September, 2007. The issue was oversubscribed by 64.8 times. The Issue Price was fixed at the top of the Price Band (Rs.44/- to Rs.52/- per share) viz. at Rs. 52/- per share. Accordingly, an amount of Rs.994.82 crore accrued to Government account from the sale of its shares in PGCIL. The money was credited to Government account on 3rd October, 2007 and trading in the shares of PGCIL commenced on 5th October, 2007.

The NEP consisted of wide ranging economic reforms. The thrust of the policies was towards creating a more competitive environment in the economy and removing the barriers to entry and growth of firms. This set of policies can broadly be classified into two groups:

The stabilization measures - are short term measures, intended to correct some of the weaknesses that have developed in the balance of payments and to bring inflation under control. There was a need to maintain sufficient foreign exchange reserves and keep the rising prices under control.

The structural reform measures - are long-term measures, aimed at improving the efficiency of the economy and increasing its international competitiveness by removing the rigidities in various segments of the Indian economy. Disinvestment means selling government equity in public sector units (PSUs) to private parties. Thus Disinvestment refers to the sale or liquidation of an asset or subsidiary of an organization or government. It is also known as divestiture or divestment. In India the process of disinvestment began since 1991-92. The need for disinvestment arises from the fact of poor performance of PSUs.

The major thrust for Disinvestment Policy in India came through the Industrial Policy Statement 1991.The policy stated that the government would disinvest part of their equities in selected PSEs. However it did not stake any cap or limit on the extent of disinvestment. It also did not restrict disinvestment to any class of investors. The main objective was to improve overall performance of the PSEs.

OBJECTIVE OF DISINVESTMENT:

To improve performance of units

The main argument in favor of disinvestment is the poor performance of PSUs. For instance the average return on investment was hardly 2% during the 1980s and 1990s.

To reduce budgetary deficits

One of the factors of budgetary deficits is the allocation of huge amount of funds to PSUs. Due to lack of improvement of performance in such units, these deficits lead to rising prices which in turn affected the economy.

To overcome the problem of political involvement in PSUs

There was too much political interference with respect to location of the project, selection and promotion of top personnel, awarding important contracts etc. This has lead to poor performance of the PSUs.

Enable the government to concentrate on Social development

It is of the belief that by transferring PSUs to private players, it would enable the government to concentrate on the government’s main job i.e. social development in areas such as primary health, primary education, law and order, family welfare and so on.

OTHER OBJECTIVES WOULD INCLUDE

To provide better service to customers To ensure proper planning and execution To overcome the problem of corruption To fix the responsibility on management To make efficient use of disinvestment proceeds

Public sector enterprises (PSEs) or Public Sector Units (PSUs), which were given a special role in India’s planned economy, grew both in terms of numbers and investment for over four decades from the early 1950s.

At the end of the Seventh Plan in 1990, there were 244 PSEs and the investment in them had gone up to Rs. 99, 329 crores. Although disinvestments had started from the early 1990s,at the end of the Eighth Plan in 1997, investment had soared to Rs. 2, 13,610 crores. At the end of the fiscal year 2000-01, PSEs had a total investment of Rs. 2, 74, 114 crores. The PSEs made a significant contribution to industrial production, 100 per cent in lignite, over 80 per cent in coal, crude oil and zinc, almost 50 per cent in aluminum and over 30 per cent in finished steel.

CURRENT POLICY ON DISINVESTMENT

The policy on disinvestment has been articulated in paragraph 34 of President’s Address to Joint Session of Parliament on 4th June, 2009 and reads as under:

Our fellow citizens have every right to own part of the shares of public sector companies while the Government retains majority shareholding and control. My Government will develop a roadmap for listing and people-ownership of public sector undertakings while ensuring that Government equity does not fall below 51 %.

The above policy was reaffirmed by the Finance Minister in paragraph 37 of his Budget Speech on 6th July, 2009.  Paragraph 37 of FM’s Budget Speech reads as:

The Public Sector Undertakings are the wealth of the nation, and part of this wealth should rest in the hands of the people. While retaining at least 51 per cent Government equity in our enterprises, I propose to encourage people’s participation in our disinvestment programme. Here, I must state clearly that public sector enterprises such as banks and insurance companies will remain in the public sector and will be given all support, including capital infusion, to grow and remain competitive.

The Government, on 5th November 2009 has approved the following action plan for disinvesting Government equity in profit making CPSUs:

i) Already listed profitable CPSUs, not meeting the mandatory public shareholding

of 10%, are to be made compliant;

ii) All CPSUs having positive net worth, no accumulated losses and having earned net profit for the three preceding consecutive years are to be listed through Public Offerings, out of Government shareholding or issue of Fresh Equity by the company or a combination of both; and

iii) The proceeds from disinvestment would be channelized into National Investment Fund and during April, 2009 to March, 2012 would be available in full for meeting the capital expenditure requirements of selected social sector programmes decided by the Planning Commission / Department of Expenditure. The status quo ante will be restored from April, 2012.

ADVANTAGES OF DISINVESTMENT POLICY

1. Most of the public sector companies are loss-making and are a burden on public funds.

2. Since the government is corrupt, the public sector companies are also corruptly managed.

3. In the hands of the private sector, the public sector companies would be run more efficiently.

As pointed out by experts, if the government sells the asset that provides income or profit equal to or more than the prevailing interest on government securities, then the government would lose future income by selling it. On the other hand, from the private sectors point of view,it makes no sense to purchase an asset unless it provides at least a rate of return equal to the rate of interest on government securities, because that is where the private investor could otherwise put the money. This means that for such sales to occur, either

a. The private sector must believe that it is capable of generating more profits than the public sector.

b. The asset must be undervalued so that the actual rate of return for the private buyer turns out to be higher, which really means that the State exchequer has lost the money.

According to experts, whatever be the technique, to think that sale of PSU shares is the only method of reform, reflects a closed mind. Treating process of disinvestment as revenue in budgets creates pressure in selling, apart from being fiscal imprudence; the capital proceeds could be used to consolidate and revitalise Navratnas. Critics point out that, the whole disinvestments programme has been carried out by the government in a hasty, unplanned and hesitant way. As a result, the public sector equity has been sold for a fraction of what it could actually fetch. However this is only one part of the story.

The entire manner in which the proceeds from the disinvestments have been used is also being debated. The government has used these proceeds to offset the shortfalls in revenue receipts and thus reduce the fiscal deficit which it was required to do as a part of the IMF stabilization programme. The disinvestments of governments proceeds in profitable public sector enterprises and using the proceeds for current consumption needs amounts to frittering away of valuable public assets.

The correct policy would have been to allow the public sector themselves to use the resources they generate via this programme. This would have helped them to revitalize and expand their activities .The present policy has deprived the government of future yield from these enterprises.

DIS ADVANTAGES OF DISINVESTMENT POLICY

Poor performance of disinvestment in India Poor Management Lack of environment creation Delay tactics Selfish interests Some PSUs were not worth (Bharat Leather Corporation, Scooters India Ltd) Unproductive use of disinvestment proceeds Disinvestment and Unemployment Profit hungry private sector Lower value of realization Privatization leads to concentration of wealth

CONCLUSION

The debate and the case study indicates that there are many complicated economic, political and legal issues such as Debate on the Sale Profitable vs. Unprofitable Enterprises, debate on the sale of Large or Small Firms, Investment decisions before Disinvestment and Investment requirement from the private participants post disinvestment, management of Public Enterprises Debt, categorizing the Social Assets and economic assets of the PSU’s, probable environmental concerns.

Recent Investments in IPOEnnore Port is mulling to raise funds from the market for the Rs 1,600-crore capital expenditure programme it envisaged for the next five years.

The proposed projects include building rail and road connectivity, besides deepening of approach channel to 20 metres for handling capesize bulk carriers. However, the port being a mini-ratna, can not expect to receive any financial support from the government towards the expansion.

It is in this context that the country's only corporate port entity is proposing to float initial public offer ( IPO )) for the funds. The port has two shareholders:

Centre (68%) and Chennai Port Trust (32%) and with issuance of share, the shareholding of the Centre could fall from its current level.

According to port analysts, if the float materialises, the issue would be in line with the disinvestment policy of the government. Accordingly, the government is seen diluting its stake in various undertakings.

For example, the Centre last week decided to sell 10% of its equity in Shipping Corporation of India through a follow-on public offer, in which the company will also issue fresh shares. Similarly, the Centre has approved Steel Authority of India and Coal India to go for public offer of shares as it seeks to raise Rs 40,000 crore through disinvestment.

Though in the initial stages yet, according to sources, the port is expected to submit a plan before the ministry can take a call. Once the ministry agrees, the Disinvestment Department in finance ministry will take a view. Accordingly, the Cabinet Committee on Economic Affairs will take the final decision.

With the ministry of shipping planning to corporatise more ports within its control, the way this first corporate entity performs will help shape the future course of India's 12 major ports.

The initial public offer (IPO) of India's largest coal producing company Coal India (CIL) has seen huge response from investors and has received bids for more than USD 53 billion worth of equity shares as against issue size of USD 3.5 billion on last day.

The issue has been subscribed more than 15.28 times, including major contribution from qualified institutional buyers (QIBs) followed by non-institutional investors (NIIs) and retail investors.

For the reserved portion of QIBs (which closed on Wednesday and was subscribed 24.7 times), foreign institutional investors put in bids for USD 27.5 billion worth of equity shares followed by domestic financial institutions and mutual funds with USD 10 billion and USD 1.4 billion, respectively. (USD 1 = Rs 44)

The reserved portion of non-institutional investors was subscribed 25.4 times and retail 2.31 times while employees' portion was subscribed just 0.1 times.

Institutional investors have gone all out for Coal India with the IPO getting highest-ever demand received by an Indian issue.

11 Aug, 2010

The government is now looking to add MMTC and Shipping Corporation of India to its disinvestment list, raising the possibility of the proceeds crossing the

budgeted Rs 40,000-crore mark for the current fiscal.

The Union Cabinet has already approved disinvestment in Coal India, SAIL, Power Grid and Hindustan Copper and Manganese Ore India. All these companies could raise Rs 28,000 crore for the government while a 10% stake of MMTC alone could fetch over Rs 15,000 crore.

The government has so far mopped up about Rs 2,000 crore through stake sale in Satluj Jal Vidyut Nigam and Engineers India. It had raised Rs 25,000 crore in 2009-10.

“Government is considering stake sale through public offerings in MMTC, Coal India, Steel Authority of India (SAIL), Shipping Corporation of India (SCI), Power Grid Corporation, Manganese Ore India (MOIL) and Hindustan Copper India,” minister of state for finance Namo Narain Meena told Rajya Sabha in a written reply.

The government filed the offer document for a 10% stake sale in Coal India on Monday, and it has shortlisted merchant bankers to manage the MOIL offer, which is expected to fetch about Rs 2,500 crore. The Coal India public offer, tipped to be the largest offer from a public sector company, is expected by October and could help the government raise over Rs 17,000 crore.

In MOIL, the Centre will offload 10%, while the state governments of Maharashtra and Madhya Pradesh would dilute 5% each. The Centre holds 81.57% in the mini-ratna entity, while Maharashtra and Madhya Pradesh have 9.62% and 8.81% stake, respectively. However, the stake sales in SAIL and MOIL may happen only in the next calendar.

The Shipping Corporation board will take up a proposal for issue of 10% fresh equity in the proposed offer on Wednesday.

The government will disinvest 10% in the offer. In a move towards disinvestment, the MMTC board recently approved a proposal for stock split and issue of bonus shares. At Tuesday’s closing price of Rs 1,549.70 crore on the Bombay Stock Exchange, a 10% stake sale in the company could raise nearly Rs 15,000 crore.

A change in the public holding norms, giving relaxation to public sector entities to list on bourses with 10% float, is expected to prompt many PSUs to shed their reservations and access markets.

Many public sector firms like CIL and Nalco as well as the department of disinvestment had sought a review of the norms apprehending a negative impact on the valuations.

According to the disinvestment policy approved by the Cabinet, all listed

profitable PSUs should have a public holding of at least 10% and all profitable unlisted CPSUs should be listed.BSNL IPO may happen in 2010-11: Disinvestment secy

The government has rapped state-owned Bharat Sanchar Nigam Ltd (BSNL) for poor financial performance and made a case for disinvestment through an initial public offer (IPO).

“I hope the BSNL IPO happens in the coming year (2010-11). I can’t say exactly when, but I certainly hope that it does happen, because BSNL does need to open up to public ownership, primarily with a view to strengthen its own management and its accountability,” Disinvestment Secretary Sunil Mitra told a private news channel.

 Click here to visit SME Buzz

 

  Also Read

 

- R-Infratel plans pre-IPO sale to raise Rs 2,500 cr

- BSNL floats tender for defence network

- Pyramid Saimira moves SAT

- Indian IPO market touched 5-year low in '09

- PE deals dip 63.6% in 2009

- Insurance firms may have to wait longer to list

  Also Read

 

- Roaring markets end on a modest note

- Balaji gets Rs 223.63 cr tax notice

- JP Morgan sees tablets to grow into $35 bn mkt by 2012

- Growth-oriented Budget: Dikshit

- Losses on diesel sales at Rs 12.56/ litre

More

The public sector unit (PSU) has been negotiating with the trade unions, which have been opposing any disinvestment. The unions say disinvestment or listing would serve no interest of people. The government had earlier proposed to divest 10 per cent stake.

Related Stories

News Now

Related Stories

News Now

“The company’s financials are doing pretty badly and it certainly shouldn’t be so because telecom, as you know, is one of the sectors that you have to be competitive and they (BSNL) have to pull up,” Mitra said. The government may announce a roadmap for disinvestment in PSUs through IPOs and follow-on public offer (FPOs) by March this year and BSNL could be one of the 60 PSUs identified by the government.

BSNL, which was eyeing a top slot in the mobile market at one point of time, is struggling to retain its fifth position in the market. The company is also in the process of adding to its Global System for Mobile Communications (GSM) capacity, at an investment of over Rs 35,000 crore. It had floated the tender nearly 18 months ago. Being a government-owned company, it has faced bureaucratic hurdles in placing orders with the lowest bidders. Disinvestment and listing are expected to help the PSU take decisions faster and compete with the private sector.

Despite equity support from the government, the financial mess at Air India is unlikely to abate soon, as the cash-strapped carrier would not be able to bring in funds through disinvestment or an IPO for a period of at least five more years.

This is because of two reasons: the Union Cabinet’s decision to list only profit-making public sector enterprises (PSUs), and Air India being expected to suffer substantial losses for a period of at least two more years.

When asked whether Air India’s divestment is possible under a policy announced on November 5, Civil aviation minister Praful Patel on Saturday told FE, “Not at all. That is not on the cards.” “The Cabinet policy on disinvestment is only for profit making CPSUs. Air India divestment is not possible in this framework,” he said, after inaugurating India’s first aerospace special economic zone built in Belgaum by Karnataka-based QuEST Global. The 300-acre SEZ, founded by Aravind Melligeri and Ajit Prabhu, involves an initial investment of Rs. 150 crore.

Patel has so far maintained that the government will try to list Air India on the stock exchange in the ‘near future’ but this is the first time he has ruled out any divestment. The minister however, said the government has agreed to provide equity support of Rs. 800 crore to Air India in the next two months. The Rs. 800-crore equity infusion requires a Cabinet clearance, and it is likely to come in two tranches of Rs. 400 crore each.

Disinvestment secretary Sunil Mitra on Friday ruled out any exception for loss-making PSUs and said the government will stick to the Securities and Exchange Board of India rules while divesting government stakes in such companies.

Sebi rules state that a company going for an IPO should have a track record of distributable profits for three out of preceding five years, besides four other key conditions. However, an exception is allowed to a company not satisfying any or all of the five conditions.

Such a company would have to go through a ‘mandatory book building issue’, wherein qualified institutional investors (QIPs) need to subscribe a minimum of 50% stake being offered for sale. According to a disinvestment department official, the government will stick to the criteria of ‘three-year-profit rule’ while divesting its stake in companies.

Since Air India has not made any profits in the last two years and its losses are expected to continue for at least two more years; the three-year-profit rule would mean it cannot be a disinvestment candidate for at least five more years. Also, a lack of funds could potentially exacerbate the problems at Air India, which is desperately seeking financial support from the government.

Air India suffered losses of Rs. 5548 crore in 2008-09, up from Rs. 2,400 crore in 2007-08. Officials expect it to incur further losses of at least Rs. 5,000 crore in the current fiscal. The turnaround at Air India could take another 4-5 years, according to a secretary-level official.

The government has agreed to an equity infusion of up to Rs. 5,000 crore into Air India over a period of three years, subject to substantial cost cuts and revenue enhancement. Air India’s market share rose to 18.6% in October from 17.5% in September, according to data from the directorate-general of civil aviation. It’s seat factor, which is the number of seats booked in proportion to total seats, has improved to 72.8% in October from 67.5% in September.