The Department of Disinvestment has proposed an exchange-traded fund (ETF) of listed public-sector enterprises that would constitute an offering of up to three per cent government holding.
According to divest.nic.in, the total market capitalisation all 52 central public-sector enterprises (CPSEs) is at Rs 12.32 lakh crore. Of these, the top ten alone account for a combined market cap of Rs 9.77 lakh crore. A three per cent dilution in major state-owned firms could make the ETF as big as Rs 30,000 crore, easily the single largest equity fund in the country. Since the dilution is unlikely to happen in one go, the fund may reach this size over a period of time.
The draft Cabinet note, currently under inter-ministerial consultation, will be sent to the Cabinet Committee on Economic Affairs (CCEA) for approval in the first week of January.
The finance ministry wing has also indicated that up to five per cent of the new fund, comprising stocks of listed CPSEs, would be reserved for the eligible employees of these companies, who will form part of the portfolio. However, the allocation of the ETF to CPSE employees under the reservation would not exceed Rs 2 lakh.
An ETF comprises a basket of assets (stocks, commodities, etc) which trades on a bourse like a stock and tracks an index.
The ETF is aimed at helping minimise market disruptions in public offerings of listed CPSEs and raising the government’s ability to monetise partial stake in listed firms, some of which have low liquidity and free float. The government would also benefit from a pricing perspective, as some discounts could be back-ended, according to the draft Cabinet note.
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The proposed ETF would be launched within five months of the final approval, provided the market conditions were favourable.
CCEA approval would also be sought to authorise the existing empowered group of Ministers (EGoM) to decide the constitution of the ETF portfolio, the price or net asset value at which the shares will be placed with the ETF provider. The EGoM will also have the power to decide the incentive structure for investors. This could be upfront discounts and loyalty bonuses.
The government plans to create the ETF comprising stocks of 24 listed CPSEs and launch it by early next financial year. These companies would be blue-chip PSUs like ONGC, IndianOil, PFC, NTPC, NMDC and BHEL. ICICI Securities is advising DoD on this.