After a two-year break, you may again get to see the auction method for stake sale in public sector undertakings. For, the government is re-exploring its possibilities while looking at ways to perk up its disinvestment programme.
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A lukewarm response that last year’s French auction method generated has led the finance ministry to now consider the Dutch auction. Also called descending-price auction, it would begin with a high asking price that would be lowered until a bid is made.
The ministry is also exploring options such sale of residual stake in companies such as Hindustan Zinc and Bharat Aluminium Co Ltd, besides buyback of equity by cash-rich public sector undertakings. This is to jack up its disinvestment proceeds — they are at Rs 1,144 crore, against the target of Rs 40,000 crore for the year. The ministry may soon seek the Cabinet’s nod for exercising these options. A discussion on the matter is on, says a finance ministry official. “We are debating among ourselves whether an auction method can be used — like we did in the case of Maruti,” he told Business Standard. “We may consider the Dutch action.”
In the French auction, institutional investors would bid for the stock above the floor price which is normally fixed at a discount to the prevailing market price, whereas retail investors would buy shares at the floor price. As for the Maruti Udyog Ltd (MUL), the government had, in January 2006, sold eight per cent equity of its residual 18.28 per cent in the auto major to public sector undertakings — through a differential pricing method. A year later, the remaining was also sold through a differential pricing method, fetching the government Rs 3,847 crore.
Then, in 2009, the government tried the French auction — one that is allowed by Securities & Exchange Board of India. That was for two issues: National Thermal Power Corporation (NTPC) and Rural Electrification Corporation (REC). This route was not tried in the subsequent issues of both companies, courtesy lack of a good response from investors. The NTPC issue could get only 16 per cent retail subscription, while the percentage for REC was 22.
After the NTPC issue, the government tweaked the French auction norms a bit in the REC issue, allowing institutional investors to revise their bids downwards. But this also failed to work.
These days, the government is considering minority stake sale in three loss-making companies, including Tyre Corporation. Also there are plans to offload five per cent in BHEL; this may fetch over Rs 4,000 crore.
Finance Minister Pranab Mukherjee pointed out on Wednesday that the disinvestment department regularly monitors the markets and stake sale would happen as and when the situation became conducive. “At this stage, it was too early to say whether India would be able to meet its disinvestment target,” he told the Economic Editors’ conference here.
“I don’t expect any unexpected help from any unexpected quarter. So, to maintain fiscal deficit, I will have to try to stick to all the numbers which I have taken into account while putting the deficit numbers… I take advantage of the markets, I keep in view sentiments prevailing in the market and then take appropriate decision,” he added.
The ministry is looking at alternatives to restrict the fiscal deficit at 4.6 per cent of the GDP, if the disinvestment target is not met. Recently, it also got a blow when its small savings collections dipped by Rs 35,000 crore and the borrowing for the year had to be increased by Rs 52,800 crore.
The ministry is expected to soon announce its decision on hiking the interest rates on small savings schemes based on the recommendations of the Shyamala Gopinath committee report.
Economic Affairs Secretary R Gopalan said the ministry had received most of the views from the stakeholders on the panel’s recommendations, which submitted its report in June this year. “We will be shortly taking a decision on this based on the inputs,” he added.
