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The government is no longer looking to sell Specified Undertaking of UTI's (Suuti's) stake in private-sector companies through the exchange-traded fund (ETF) route, Business Standard has learnt.
The Centre had budgeted raising Rs 6,500 crore through part-sale of the Suuti stake in Axis Bank, ITC, and Larsen & Toubro. The capital markets division in the finance ministry was exploring the option of bunching the stakes to be offloaded in these three companies and at least seven public-sector undertakings as one ETF, and listing it on exchanges. In October, the government had floated a request for proposal (RFP) for a Suuti ETF.
The change in stance, as confirmed by government and market sources, comes even as the Centre has also scrapped its proposed Rs 15,000-crore residual stake sale in Hindustan Zinc Ltd (HZL) and Bharat Aluminium (Balco).
Officials said the process for the ETF route had been proving 'too complicated' since the beginning. "You need at least 10 companies in an equity ETF. You need to work out which companies and sectors you want to include. Bunching PSUs with the three listed Suuti companies was proving a challenge," said a senior government official.
Through Suuti, the government owns an 11.27 per cent stake in ITC, 8.18 per cent in L&T and 11.66 per cent in Axis Bank. At the current market price, the stake is valued at a little more than Rs 56,000 crore. The exact shareholding the government planned to divest in each of these three companies through the ETF route was not divulged.
Sources said the finance ministry would still try to sell some stake in at least one of the three companies to raise the budgeted Rs 6,500 crore. But it seems any stake sale in the Suuti companies will have to be deferred to next financial year, as there are only three months before 2014-15 ends. Obtaining the requisite regulatory approvals and selecting merchant bankers might not be possible in so little time.
Market participants are not too surprised. They said they were not expecting a Suuti ETF to be part of this year's disinvestment plan. "There is enough appetite for such a product in the market but it is ultimately the government that has to take a final call on whether or not a Suuti ETF is part of the disinvestment plan," said a market participant.
The manager and advisor of the Suuti ETF had so far not received any formal communication from the government on scrapping the proposal, market sources said.
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In November, the government had handed the mandate to manage the proposed ETF to ICICI Prudential Asset Management Company (AMC), on an expense structure of 13 basis points. ICICI Securities, which was advisor to the government's Central Public Sector Enterprises (CPSE) ETF last year, was made advisor to the suggested Suuti ETF as well.
In its mid-year economic analysis, the finance ministry has admitted the total tax revenue projection for the year might have been overestimated by Rs 1.05 lakh crore. And, to meet the difficult fiscal deficit target of 4.1 per cent of gross domestic product, Finance Minister Arun Jaitley hopes to get more-than-budgeted revenues from disinvestment, sale of spectrum, and special dividends.
With the HZL and Balco stake sale already deferred, and the Centre relying on only a few companies to barely meet its ambitious disinvestment target, a failure to raise the budgeted amount from sale of Suuti stake might come as an additional blow.
The government had set a target of raising Rs 58,425 crore from its disinvestment programme for 2014-15 - Rs 36,925 crore from direct disinvestment, Rs 6,500 crore from sale of Suuti stakes in private companies and Rs 15,000 crore from offloading the residual stake sale in Hindustan Zinc and Balco. Of that, only about Rs 1,700 crore has so far come to the government kitty, from sale of stake in Steel Authority of India Ltd.
These imply that the Centre might have to go for much larger spending cuts than earlier anticipated, to meet its fiscal deficit target for the year.
