With market conditions looking challenging for equity offerings, the government is on an overdrive to ensure a smooth run for the public sector units (PSUs) coming up for disinvestment.
Sources close to the development said the finance ministry has sounded Life Insurance Company of India (LIC) to go slow on secondary market investments before PSUs come up for public offerings.
The move is aimed at channelising more investments into PSU issues from the country’s largest institutional investor.
| LIFELINE Change in LIC shareholding before & after the PSU issue | ||||
|
Holding in % | ||||
| Issue type | Prior issue | After issue | Current (Mar 2011) | |
| Shipping Corp | FPO | 10.48 | 13.34 | 14.13 |
| NMDC | FPO | - | 4.97 | 4.97 |
| NTPC | FPO | - | 3.51 | 3.56 |
| Engineers India | FPO | 1.6 | 1.81 | 1.84 |
| SJVN | IPO |
- | ||
-
Compiled by BS Research Bureau Source: Capitaline
While state-run ONGC’s follow-on public offering (FPO) is expected to hit the market in early July, SAIL, which had earlier planned to hit the market in June, has deferred its FPO due to ‘volatile market conditions’.
In the current financial year, the government plans to sell stakes in Hindustan Copper, Indian Oil Corporation (IOC) and National Building Construction Corporation (NBCC), among others. It has set a target to raise Rs 40,000 crore from divesting its stake in state-run companies in the current financial year ending March 31, 2012. So far, it has raised Rs 1,145 crore by divesting 5 per cent stake in Power Finance Corporation.
“We have been investing around Rs 8,000 crore during the first two months of the current financial year, but after the meeting with finance ministry officials last week, we have decided to go slow till the PSU issues come in the market,” said a senior LIC official on the condition of anonymity.
The insurance behemoth, which invested Rs 43,000 crore in equities during 2010-11, plans to invest similar amount in the current financial year.
The finance ministry more is crucial as LIC had come to the rescue of several divestment issues last year. The insurer had pumped Rs 4,200 core into NTPC follow-on offer in February 2010, which helped the issue to get fully subscribed. It also bailed out NMDC’s follow-on issue in March 2010 by putting in bids worth Rs 7,500-8,000 crore for more than two-third of the issue. LIC had also put in bids worth more than Rs 3,000 crore in Rural Electrification Corporation’s FPO in February 2010, although it did not get any allotment as other institutional investors had put in bids at higher price.
The total investment of LIC stood at Rs 1,85,000 crore in the last financial year, compared with Rs 1,92,000 crore during 2009-10. “Our total investment in the current financial year should be in the region of Rs 2,15,000 crore and 20 per cent of this should be invested in equities,” the official added.
“It will be difficult for the government to sell its issues to foreign institutional investors in the current market conditions, especially the likes of ONGC where there are subsidy issues,” said head of institutional equities at a Mumbai-based brokerage, who wished not to be quoted.
ONGC’s share of subsidy burden increased to 38.7 per cent for the quarter ended March 31 from 33.33 per cent earlier. This dragged its fourth-quarter profit down by 26 per cent. Although the government has deregulated petrol prices, is yet to take a call on increasing prices of diesel and cooking gas.
Equity investments by LIC during 2010-11 shrunk to Rs 43,000 crore, compared with Rs 61,500 crore reported in the corresponding period a year ago, on account of the new regulations by the Insurance Regulatory Development Authority, which had impacted the sales of unit-linked policies across the industry.
