The stock market could see 17-18 such issues next year
The next year could see frenetic stock market activity with public issues of government-owned companies coming out every two-three weeks. The government action plan for PSU disinvestment, which is expected to be in place by March, would aim for no more than a three-week gap between two PSU issues.
With an ambitious government-backed line-up, the stock market could see 17-18 such issues next year and an equal number the following year. “We are working on an action plan in consultation with other ministries and once the list is ready, there will have to be a phasing of public issues so that we have one of the companies going to the market every two-three weeks, in fact, a maximum of three weeks,” said a senior government official.
| THE ACTIVITY | ||||
| 2009-10 | Sale of govt equity(%) | Fresh equity(%) | Money raised# | Govt revenue# |
| Oil India | 10 | 10 | 4,494 | 2,247 |
| NHPC | 5.00 | 10.00 | 6,000.00 | 2,013 |
| *NTPC | 5.00 | - | 8,100.00 | 8,100 |
| *NMDC | 8.38 | - | 14,000.00 | 14,000 |
| *SJVNL | 10.00 | - | 1,200.00 | 1,200 |
| *REC | 5.00 | 15.00 | 4,400.00 | 1,100 |
| *Total | - | - | - | 28,660 |
| *Estimates #Rs crore | ||||
| * Since 1991, govt has raised Rs 58,000 crore from disinvestment of PSUs, of which Rs 37,000 crore has been raised through minority sales and rest from strategic sales | ||||
| THE OUTCOME | ||||
| * Disinvestment proceeds to fund capital expenditure on social sector programmes | ||||
| * Fiscal deficit at Rs 4,00,996 crore, estimated to be 6.8% of GDP for current year, may come down by 0.5% | ||||
The action plan would cover two years starting April 2010, though with four companies lined up for the stock market in the January-March 2010 quarter, the frequency could be the same from January itself. Officials said the Department of Disinvestment was in consultation with administrative ministries of over 50 PSUs to assess the preparedness for a public offer. Besides, their requirement for money to meet capital expenditure was also being examined in order to have a combination of fresh equity flow and sale of existing government holding.
NTPC Ltd, National Mineral Development Corporation (NMDC), Satluj Jal Vidyut Nigam Ltd and Rural Electrification Corporation would be going to the market before March 31, 2010. Steel Authority of India and MMTC Ltd are the two other major issues that are expected next year.
Under the disinvestment policy unveiled on November 5, 50 unlisted companies with a positive networth and profit for three years, and 18 listed companies that have less than 10 per cent floating equity, would tap the market.
On assessing the preparedness, the official said an important issue for unlisted companies related to disclosures and accounting practices. “We have to see that the companies follow a transparent accounting practice and their latest accounts have been published.”
The government would need to appoint executive chairman and managing directors in unlisted companies that do not have them. Besides, appointment of independent directors on boards of listed and unlisted companies would need to be speeded up. “We will not seek waiver from the Securities and Exchange Board of India on listing requirement, since the idea behind disinvestment is to unlock shareholder value for better governance. There should not be two sets of rules for private and public companies,” he added.
Experts welcome the public offers and rule out crowding out of private issues from the market. “The current market is high not because of value, but because of availability of liquidity. If the available stock remains the same, the P/E (price/earning) multiple will be out of hand. The government decision is prudent at this time since there is excess liquidity in the market and availability of more stocks in the market will help,” said Ashvin Parekh, partner and national director, global financial services, Ernst & Young.
Parekh is of the view that the Reserve Bank of India in tandem with the government was not increasing the cash reserve ratio (CRR) in order to keep the liquidity intact for disinvestment. “A 0.5 per cent CRR hike would take away Rs 9,000-10,000 crore liquidity,” he added. Out of the PSUs that are going to the market in 2009-10, only NMDC and NTPC are the large ones. “The market will easily be able to absorb Rs 12,000-15,000 crore that these companies raise,” he added.
The government fund raising through disinvestment could help in reducing inflationary trends since it would cut fiscal deficit, said Parekh. Even in the case of stimulus measures being withdrawn and liquidity reducing, he did not see any negative impact but cautioned that the government might need to be careful about the kind of issues it puts on offer.
