Divestment may bring in Rs 32,500 cr in 3 months

NEW DELHI: The government could raise around Rs 32,500 crore in the next three months through its revived divestment programme, more than 55% of
what it has collected from sale of its shares in public sector undertakings since 1991.

The United Progressive Alliance (UPA) government, which is facing the largest fiscal deficit in the past 16 years, is keen to raise as much as it can this year to bridge the funding gap. The deficit soared to Rs 397,000 crore or about 6.8% of the national income this year, as a result of the government’s stimulus measures, announced to avert an economic downturn after some of the world’s largest economies fell into the grip of a recession.

The government has already kicked off big-ticket divestment programmes in NTPC and NMDC, from which it plans to mop-up around Rs 25,000 crore. In NTPC, the government is divesting a 5% stake to collect Rs 11,000 crore through the fast-track route, making this the fist follow-on public offer to use this facility.

It will divest a 8.38% stake in NMDC to take the total floating stock of the company to 10%. The government is set to appoint six investment bankers for this issue shortly. At the current market price of Rs 415 per share, the stake on the block would fetch the government around Rs 14,000 crore. However, bankers are sceptical about the pricing of the issue.

“The valuation seems to be stretched,” said a banker, who has bid for the mandate of NMDC issue. The current share price is based on a tiny floating stock and may not be reflective of the underlying value of the company, he said, requesting anonymity. The government has set the deadline of March-end to close the issue.
To facilitate the divestment drive, market regulator Sebi has relaxed the guidelines governing follow-on public offers. This will help government complete some of these issues by the year-end.

Under the fast-track route, a company does not have to wait for the approval of the market regulator, which normally takes more than a month. “Once the prospectus is ready and filed with the regulator, the issue can open for subscription,” said a banker. A senior government official in the department of disinvestment said the government is also planning to sell 5% in Steel Authority of India (SAIL).

“The process is likely to start in January after the Cabinet gives its approval. The follow-on public offer (FPO) of SAIL will be under the fast-track route, which will help the government to close the entire process within 45 days from the date of approval,” he said, requesting anonymity.
At the current price of Rs 235.60 per share, SAIL’s market value is Rs 97,300 crore, and a 5% divestment would fetch nearly Rs 5,000 crore. The issue will be priced at the premium to the current market price, said another banker.

The government has already raised Rs 4,260 crore this fiscal year through divestment of minority stakes in NHPC (Rs 2,013 crore) and Oil India (Rs 2,247 crore). The government has already mopped up far in excess of the target of Rs 1,120 crore set by the Union Budget 2009-10. Even in the case of NTPC and REC, the government has asked these bankers to price the issue at substantial premium over the current market price.

The UPA government has collected around Rs 57,683 crore so far from the divestment programme, started in 1991. In its previous term, it could not sell stakes in public sector firms due to pressure from its Left allies. The government led by Manmohan Singh looks more confident to carry forward reform agenda in its second term, as it no longer needs the Left’s support.