Govt may dilute stake in listed PSUs to 90%

The Union finance ministry is examining a proposal that seeks to dilute the government's stake in all listed public sector undertakings to at least 90 per cent.

The proposal is an offshoot of the government thinking that there is no need for a big-bang approach to PSU disinvestment. In fact, the new government's agenda for action, finalised by the Cabinet secretariat, had recommended that public sector disinvestment should take place in small doses.

There are about a dozen listed public sector undertakings (PSUs) in which the government's stake is between 90 and 99 per cent. However, given the current buoyancy in stock market prices, the government could raise more than Rs 25,000 crore if it offloaded up to 10 per cent stakes held in these PSUs, a senior finance ministry official said.

The official's estimate of disinvestment proceeds from these PSUs is conservative. At current stock market prices, the government can mobilise around Rs 37,000 crore by selling up to 10 per cent in only the top ten PSUs in which it owns over 90 per cent.

The government's argument is that the Securities and Exchange Board of India's regulations stipulate that all listed companies must have a minimum floating stock of 10 per cent of total equity. The proposed disinvestment in these dozen-odd companies could also be justified as a requirement under Sebi regulations, the official said. Also, disinvestment up to 10 per cent in listed PSUs are least likely to cause any controversy or provoke political opposition.

The dilution of stakes in such PSUs will be one of the major initiatives of the new disinvestment policy expected to be announced in the Union Budget for 2009-10 in the first week of July. The policy will outline the government's blueprint for disinvestment and closure of sick and unviable PSUs.

WHAT'S AT STAKE
Company	Total outstanding In shares (mn)	Govt stake		Disinvested shares (in million)	Price per share (in Rs) on Jun 3
		in %	in shares (mn)
Hindustan Copper	925.22	99.59	921.42	3.79	270.70
MMTC	50.00	99.33	49.67	0.34	28271.15
HMT	760.35	98.88	751.83	8.52	74.34
NMDC	3964.72	98.38	3900.49	64.23	412.00
FACT	354.77	98.11	348.07	6.71	52.45
National Fertilisers	490.58	97.64	479.00	11.58	79.65
Scooters India	42.99	95.38	41.01	1.99	25.05
Andrew Yule & Co	296.33	94.42	279.79	16.54	56.30
Neyveli Lignite	1677.71	93.56	1569.67	108.04	136.60
ITI	288.00	92.98	267.78	20.22	41.15
RCF	551.69	92.50	510.31	41.38	81.59
STC India	60.00	91.02	54.61	5.39	366.45
Shareholding pattern as on 31st March 2009 Source: Business Standard Research Bureau Current disinvested equity calculated on total outstanding shares minus government stake

Internal discussions within the finance ministry on the broad contours of the disinvestment policy have still not concluded. A general consensus, however, has been reached on the proposal to allow listed and unlisted PSUs to tap the capital market to meet their funds requirements, as long as the total government equity in these does not fall below 51 per cent.

One of the issues on which no clarity has emerged is the manner in which the unlisted PSUs will be allowed to tap the capital market with an initial public offer. A section within the ministry is of the view that allowing unlisted PSUs to tap the capital market would not necessarily result in any proceeds for the central exchequer and not help meet the government's fiscal deficit. Hence, such IPOs should be structured in a manner that will enable the government to also divest its stake and mobilise resources to reduce the fiscal deficit.

A contrary view in the ministry is that PSU disinvestment should not be used as an instrument to meet the government fiscal deficit. Instead, it should be used to subject the PSUs to market discipline so that its management can measure its performance through the yardstick of its stock valuation in the open market. Such a view also supports more listed PSUs to float new stock to raise resources from a reviving stock market.

Disinvestment of government equity in PSUs has become an important agenda item for the Budget team in the finance minister after the strong endorsement it received from several industrialists who met Finance Minister Pranab Mukherjee two days ago during a pre-Budget meeting. These industrialists had argued that the finance minister should allow the PSUs to tap the capital market to meet their individual funds requirement for expansion plans.