Govt to divest CIL, ONGC, SAIL by end of Jan 2015

Coal India or ONGC may hit market in 2 weeks; call on Concor, PFC, REC yet to be taken

With only four months left for the financial year to end, the government is rushing to complete at least part of its disinvestment plan for 2014-15. Finance ministry officials are confident that Coal India, ONGC, SAIL, and NHPC will hit the market by the end of January.

Though a final date for Coal India and ONGC had not been decided — since the department of disinvestment was watching market conditions — one of the two could hit the market within next two weeks, sources told Business Standard. They, however, admitted there was no clarity yet on stake sales in Concor, REC, PFC, HAL and RINL, some of which might be shelved.

Based on the share prices of the companies at close on bourses on Tuesday, sale of a 10 per cent stake in Coal India will fetch about Rs 21,968.3 crore, five per cent in ONGC Rs 16,503.5 crore, 11 per cent in NHPC Rs 2,699.4 crore and five per cent in SAIL Rs 1,739.8 crore. The combined proceeds from these four public-sector behemoths would be around Rs 42,911 crore, compared with the Budget target of raising Rs 36,925 crore from stake sale in state-run firms during 2014-15.

However, in a written reply in the Rajya Sabha on Tuesday, Minister of State for Finance Jayant Sinha said the expected realisation from ONGC was Rs 11,477 crore, Coal India Rs 15,740 crore and NHPC Rs 1,976 crore. These lower expectations could be on account of the discounts the government might offer to attract more participation from retail and institutional investors.

Sinha added the government had approved revival of seven sick central PSUs — HMT Machine Tools, Tyre Corporation, Tungabhadra Steel Products, HMT Bearings, Richardson & Cruddas, Central Inland Water Transport Corp and Hooghly Docks & Port Engineers Ltd — through the disinvestment or joint venture route.

Additionally, late on Tuesday evening, Finance Minister Arun Jaitley met Finance Secretary Rajiv Mehrishi, and Disinvestment Secretary Aradhana Johri, to take stock of the disinvestment plan for the year. Some sources who were part of the deliberations said the sale of stake in Coal India could take place in tranches, as the company’s shares were undervalued at present.

The proceeds from the big four stake sales could have been Rs 46,302 crore, if the sales had taken place in mid-July. While a bull run inspired by the Narendra Modi government continues in the broader market, delays in PSU stake sales have given investors time to offload these shares which has eroded their valuations.

“The government plans to sell stakes in Coal India, ONGC, SAIL, and NHPC by January-end,” said a senior finance ministry official who did not wish to be named. The person added road shows for Coal India and ONGC were near completion, and one of the two could hit the market by the middle of December. A decision on the remaining smaller stake sales would be taken after that.

“PFC and REC disinvestments are yet to receive clearance from the Cabinet. As for the initial public offerings, HAL seems unlikely this year, while the draft red-herring prospectus for RINL has been sent to the market regulator,” the official said. The person added the government might not have enough time to complete the regulatory work to take RINL public this financial year.

The combined proceeds from sale of five per cent each in Concor, PFC, REC and MOIL could be about Rs 5,210 crore at current stock prices, while the government expects about Rs 5,500 crore from 10 per cent stake sales in HAL and RINL.

This might not seem much but Finance Minister Arun Jaitley has set a tight fiscal deficit target of 4.1 per cent of gross domestic product and every rupee counts. The tax authorities have to raise Rs 6.54 lakh crore in the second half of 2014-15 — 28 per cent more than what they did in the period from October 2013 to March 2014 — to meet the full-year target of Rs 9.77 lakh crore.

In spite of an expected reduction in fuel subsidies due to low international crude oil prices, Budget makers expect a tax revenue shortfall again in 2014-15, and as reported earlier, might be forced to cut spending by Rs 35,000-40,000 crore if revenues do not materialise from disinvestment, spectrum sales and special PSU dividends.

Apart from stake sale in PSUs, the Centre also plans to raise at least Rs 15,000 crore from sale of its residual stake in Hindustan Zinc Ltd (HZL) and Balco, and Rs 6,500 crore from part-sale of the stake it holds in Axis Bank, ITC, and Larsen and Toubro, through Specified Undertaking of UTI (Suuti).

Sources told Business Standard that the valuer, RBSA Valuation Advisors, had sought another month to arrive at a value for the Centre’s stake in HZL and Balco. They said merchant bankers could be appointed to take stake sale ahead only after the valuation exercise was complete.

Given that the entire process — from appointing merchant bankers to road shows and the issue hitting the market — could take at least four months, officials conceded HZL-Balco residual stake sale might not happen this financial year. “There also is a petition in the Supreme Court that will weigh on sale of any residual stake,” a second official told Business Standard, referring to the public interest suit filed earlier this year challenging the stake sale.

RACING AGAINST TIME

• Dec plan: Stake sales in Coal India or ONGC to take place in the middle of Dec
   
• No decision: On Concor, PFC, REC and MOIL disinvestments
   
• On back burner: HAL and RINL initial public offerings
   
• Beyond target: Disinvestment department needs to exceed the Budget target to offset any shortfall in tax receipts
   
• Residual stake: Valuers have sought more time to value Centre’s stake in HZL and Balco