Will govt's disinvestment programme 'SAIL' through?

In the past few years, actual proceeds from disinvestment have been much lower than targets

The government’s ambitious disinvestment programme for 2014-15 kicked off on Friday with the sale of stake in Steel Authority of India Ltd (SAIL), through the offer-for-sale (OFS) route — barely three months before the financial year ends. Of the overall target of raising Rs 58,425 crore through disinvestment in the current financial year, the government raised Rs 1,715 crore through the SAIL OFS, which was subscribed 2.08 times on Friday; the portion reserved for retail investors was subscribed 2.66 times.

Besides the SAIL OFS, where the government is looking to pare five per cent of its stake to bring the holding to 75 per cent, there are companies like Coal India, ONGC, NHPC, Power Finance Corporation (PFC), Rural Electrification Corp (REC), Hindustan Zinc and Balco, where the government intends to divest stake, reports suggest.

However, going by the experience of the previous years — when the actual proceeds from stake sale were much lower than the targets — the government’s disinvestment target for 2014-15 appears too ambitious.

For instance, in 2013-14, receipts from sale of minority shareholding in Central Public Sector Enterprises (CPSEs) totalled Rs 15,819.46 crore, against a disinvestment target of Rs 40,000 crore, show data from the department of divestment. These disinvestment proceeds last year were: Rs 571.71 crore from MMTC; Rs 259.56 crore from Hindustan Copper; Rs 101.08 crore from National Fertilisers; Rs 30.17 crore from India Tourism Development Corp; Rs 4.54 crore from State Trading Corp; Rs 358.21 crore from Neyveli Lignite; Rs 2,131.28 crore from NHPC; Rs 1,637.32 crore from Power Grid Corp; Rs 497.32 crore from Engineers India Ltd; Rs 1,886.78 crore from Bharat Heavy Electricals Ltd; Rs 5,341.49 crore from Indian Oil Corp; Rs 3,000 crore from CPSE-ETF.

Likewise, in 2010-11, 2011-12 and 2012-13, the government could only garner Rs 22,144.21 crore, Rs 13,894.05 crore and Rs 23,956.81 crore through sale of minority shareholding in CPSEs, which were 44.64 per cent, 65.27 per cent, and 20.14 per cent short of actual targets for each of those years.

So, will this time be any different or will the cash-rich Life Insurance Corporation (LIC) again have to come to the rescue?

  Ambit Investment Advisors Managing Director Vaibhav Sanghavi explains: “The one difference this time is that the markets are quite buoyant and foreign institutional investors (FIIs) are looking at opportunities to invest. So, if they get a good deal in terms of stocks/companies on offer, they will definitely invest. In terms of key macros, India is in a much better shape and the developments are being viewed positively by investors. Even if the disinvestment target for this financial year is not met, the shortfall will not be much.”

“For a retail investor wanting to buy PSU stocks, the government’s stake sale programme is a good time to get in. There are a lot of PSUs that have tremendous value. So, if one is looking to stay invested for the longer term, this is a good option. The retail investors are also getting a cushion in terms of discounts on offer in these issues,” he adds.

Meanwhile, there have been reports that LIC, known to be the government’s white knight for divestment programmes, has been exiting some stocks to prepare a war-chest for this year’s programme. Reports suggest LIC’s investment in equity markets this financial year has been Rs 45,000 crore; it could be ready to invest more through the government’s stake sale programme.

“I think the government has done the right thing by announcing the list of probable candidates well in advance. It also wants to address key issues like subsidies, which could have been an overhang for disinvestment candidates like ONGC. This gives a lot of clarity to investors wanting to buy these stocks or participating in the Centre’s disinvestment programme. It will ensure the programme is successful. Given the market environment we are in, I don’t think raising money for the government through the stake sale route will be a problem,” says Deven Choksey, managing director & chief executive of K R Choksey Shares and Securities.