Cabinet set to approve broadened framework this week; market route to be pursued as well.
In one of the first major decisions of 2012, the government is set to clear a new, broadened framework for disinvestment this week.
Under the extended ambit, slated for a Cabinet nod in the next meeting, government institutions, banks and companies including LIC will be allowed to buy government stake in Central Public Sector Enterprises (CPSEs) with the help of bulk sales.
Cash-rich CPSEs will also be permitted to go for share buybacks as one option concretised by the Department of Disinvestment (DoD) and sent for Cabinet approval to perk up the disinvestment process while skirting a bearish market scenario.
| THE PLAN |
| * Bulk sales to govt institutions and companies |
| * LIC, banks and other institutions to tap the opportunity |
| * Buyback of shares by cash-rich companies |
| * Auction of securities through stock exchanges |
A senior government official told Business Standard the Cabinet was likely to approve the comprehensive strategy put forth by the DoD so that it could be implemented soon.
Disinvestment secretary Mohammad Haleem Khan told Business Standard, “We are trying to convert the adverse market situation into an opportunity for making various options available to government companies. The idea is to make all the options before private companies also available to them.”
Once the Cabinet gives its nod to the DoD plan, government institutions, banks and companies interested in buying government stake in CPSEs will be able to send their proposals. They’ll be allowed to acquire government stakes in either one company or in a number of CPSEs through a bulk sale. The interested entities would be able to go beyond the list of CPSEs already cleared for disinvestment.
The process is expected to begin immediately after a Cabinet nod to the DoD plan. But, in no case would the government stake in any CPSE be allowed to go below 51 per cent. DoD officials are of the view shares would sell at a premium through this mode, as against discounted sales through the market route.
The new company, likely to be created by the dissolution of the Specified Undertaking of UTI (Suuti), will also be able to utilise this option for buying shares of CPSEs.
The other mode part of the strategy is the buyback of shares by cash-rich CPSEs. The buyback may be undertaken as part of the CPSEs’ strategic capital restructuring. Share buybacks by listed CPSEs may be allowed through public offers in accordance with the prevailing guidelines.
The Securities and Exchange Board of India’s move to come out with new rules making it easier for the government to push divestment in CPSEs is being seen as part of the plan. The market regulator is likely to allow the promoters of companies to sell shares by auctioning securities through stock exchanges. This process will be quicker and more efficient than a full-fledged public offering of shares.
The cross-holding proposal mooted earlier is set to be dropped, as the finance ministry has stressed it may be seen as the government dipping into the cash surplus of CPSEs to meet the fiscal deficit target.
On whether the new steps would help the government meet its disinvestment target of Rs 40,000 crore in 2011-12, Khan said, “When we talk of disinvestment, it is important to view it beyond its relevance to the yearly target and the corporate governance aspect should be kept at the forefront.”
The government has been able to garner Rs 1,144.55 crore this year from disinvestment in Power Finance Corporation. The process for the rest of the companies approved is hanging in the balance due to adverse market conditions. These companies include Oil and Natural Gas Corporation, Steel Authority of India, Bharat
Heavy Electricals Limited and National Buildings Construction Corporation Ltd.
Reorientation of the disinvestment strategy does not mean the market route is out of favour. DoD officials say the department will keep pursuing disinvestment in CPSEs approved to go for the market route.
The option of getting additional or special dividend from cash-rich CPSEs may also be considered this year for improving revenue realisation from the government stake.
