For first time in 8 yrs, stake sale proceeds could exceed Budget Estimates

ONGC's acquisition of HPCL alone could get the exchequer more than Rs 30,000 cr

In the backdrop of expected tax revenue shortfall due to the goods and services tax (GST) implementation and a possible spending stimulus to revive a flagging economy and create jobs, Finance Minister Arun Jaitley will depend on revenue heads like disinvestment to adhere to the fiscal deficit target for 2017-18. 

And, for the first time since 2009-10, it appears stake sale proceeds could exceed the budgeted estimate of Rs 72,500 crore, the highest-ever for any financial year to date. For April-September, the first six months, the Centre has got Rs 19,759 crore. On tap now is state-owned energy behemoth Oil and Natural Gas Corporation’s (ONGC’s) acquisition of Hindustan Petroleum that could get the exchequer more than Rs 30,000 crore. Then there are a number of initial public offerings (IPOs) of equity, offers for sale (OFS), a new exchange traded fund (ETF) and planned equity buybacks.

“By our estimate, there might still be a shortfall of Rs 1.1 lakh crore in the revenue receipts… However, the good news is that budgeted disinvestment receipts are on track to realising Rs 72,500 crore. At current trends, it is likely that for the first time after FY10 that the disinvestment target is likely to be achieved,” State Bank of India’s (SBI’s) Chief Economist, Soumya Kanti Ghosh, wrote in a note to clients on Monday.

The Centre did an IPO of General Insurance Corporation this month. At Rs 11,300 crore, it was the largest one in seven years. Planned for this year is the IPO of at least another insurer, New India Assurance, which could fetch Rs 10,000 crore. 

The finance ministry’s Department of Investment and Public Asset Management (Dipam) is also working with the defence and rail ministries on a number of market debuts — IRCTC, IRFC, Ircon, Hindustan Aeronautics, Garden Reach Shipbuilders, Bharat Dynamics, and Mazagon Dockyard. For the rest of the year, Dipam is also working on the following OFS proposals, say sources, to offload 10 per cent stake in NHPC, Power Finance Corporation (PFC), and Steel Authority of India; 15 per cent in NLC, five per cent in Rural Electrification Corporation (REC), and three per cent in IndianOil. In August, it sold a seven per cent stake in NTPC.

 

Then, there is the Centre’s second ETF, comprising stocks of state-owned companies and private companies in which the government holds a substantial stake. Named Bharat-22, the new CPSE ETF draws companies from six sectors. Constituents of the basket are National Aluminium, ONGC, IndianOil, Bharat Petroleum, Coal India, SBI, Axis Bank, Bank of Baroda, REC, PFC, Indian Bank, ITC, Larsen & Toubro, Bharat Electricals, Engineers India, NBCC, Power Grid Corporation, NTPC, GAIL, NHPC, NLC, and SJVN. It is expected to be traded soon.

“We have built a robust pipeline over the years and that is now paying dividend,” said a senior government official. “What helps is the alternativee mechanisms that have been created for divestment issues. The ministries don’t have to go to the cabinet for every approval regarding stake sales, saving a lot of time. 'Alternative Mechanisms' are essentially groups of ministers who decide on OFS, IPOs and strategic sale. These are headed by Jaitley.

However, the official also warned against complacency and said a number of factors would decide the end result of the year’s disinvestment programme, including investor appetite. “So far, our public issues have been successful. We hope that interest among large institutional investors and smaller retail investors is maintained for whatever we have lined up for the rest of the year.” The mega ONGC-HPC deal, he said, was the peg on which the success of the programme rested.

There are also options the government is working on. Senior ministers and bureaucrats have discussed among themselves whether Air India could be privatised this financial year itself. However, independent analysts believe with only five months left, that is unlikely. There is also expected to be a fourth tranche of the centre’s existing CPSE ETF, whose basket constitutes 10 stocks.

Dipam has also started the process of strategic divestment of loss-making Scooters India and has plans to privatise BEML, Pawan Hans, and Hindustan Prefab. 

The finance ministry also plans to merge a number of loss-making state sector units with larger government-owned rivals in similar sectors. There is a recommendation to close State Trading Corporation and PEC, merging their assets with bigger MMTC. State-owned and listed construction company NBCC has already bought Hindustan Steelworks Construction. There are also plans to merge smaller units in the construction space, such as Hindustan Prefab, Engineering Projects India, NPCC and HSCC with the larger NBCC.