Just a few days ago, >on September 10, the Union Government announced its decision to dilute its stake in three public sector undertakings — Oil and Natural Gas Corporation (ONGC), Coal India (CIL) and National Hydroelectric Power Corporation (NHPC). All three are blue chip PSUs in which the government is by far the dominant stakeholder. At present, the government owns 89.65 per cent in Coal India, 85.96 per cent in NHPC and 68.94 per cent in ONGC.
The government plans to sell 10 per cent in Coal India to yield Rs.23,600 crore, 5 per cent in ONGC (estimated realisation Rs.19,000 crore) and 13.3 per cent in NHPC (Rs.3,100 crore). If all goes well, the total realisation from just these three stake sales will exceed Rs.45,000 crore,well past the budgetary estimate of Rs.43,425 crore, under this category.
That would also make it the highest-ever collections under the government’s disinvestment programme. The previous record was in 2009-10 when the government sold NTPC and NMDC shares and realised Rs.23,957 crore. To put matters in perspective, CIL’s divestment alone will fetch that much this year.
The Finance Minister has also budgeted for another Rs.15,000 crore through sale of government’s residuary stake in erstwhile government companies. Strictly speaking, the shares in this category cannot be compared with those on offer under the disinvestment programme. For example, government, although having a substantial stake in BALCO, has ceded control to Anil Agarwal’s Vedanta group in a big-bang privatisation. The private party has the right of first refusal but there is a controversy as to how much the government will get for its residual stake.
Then, there is the matter of getting a proper price for the government-owned UTI’s holding of some blue chip shares, including Axis Bank and Larsen & Toubro. Any eventual sale of these bulk shares will obviously have to take into account not just their price. The government ought to be sensitive to charges of playing favourites. Getting back to this year’s disinvestment story, retail investors — defined as those who bid for less than Rs.2 lakh, will get sops, a 20 per cent reservation in the issue, and a 5 per cent discount to the issue price. Surely, employees are bound to get similar concessions and incentives.
Lip service to retail investors Over several rounds of disinvestment, the government has sought to incentivise retail participation. The results have been tardy for many reasons.
It is possible the size of the discount is not sufficient. Moreover, the market price of these listed companies starts converging to the issue price, which, in effect, means that the retail investor will lose his advantage almost immediately. This has happened with many issues in the past. Retail investors benefit only by holding on to their shares over the medium-term.
Another relevant issue: notwithstanding the discount, small investors might be hard pressed to invest up to the maximum — in this case Rs.2 lakh in each issue. There will be sundry non-banking finance companies (NBFCs) and others financing the issue but, as in the past, retail investors might not be tempted.
A point overlooked is the crucial role that the methodology of public sector sale in attracting different types of investment. Reports speak of the government opting for the offer for sale of shares through the stock exchanges. This is one of the two methods introduced by the Securities and Exchange Board of India (SEBI) some three years ago to aid the disinvestment process, the other being the institutional placement programme (IPP). Although private companies can also adopt these, it is for the public sector that they are intended.
Through another SEBI stipulation, there should be a minimum public float of at least 25 per cent. Many PSUs have a smaller size of public holding. The government, which owns substantially more and in a hurry to comply with the SEBI rule, has often resorted to the first method, the offer for sale through the stock exchanges. This is undoubtedly a faster method to the follow-on public offer through a prospectus and involving many time-consuming clearances. But what is good for the PSU and the government need not be retail investor-friendly.
If the government mops up the nearly Rs.43,500 crore from these offerings, it would be on course to achieve the budget’s ambitious fiscal deficit target — at 4.1 per cent of GDP. However, the point about disinvestment is that it will unlikely yield similar large receipts in the following years. The high valuations obtaining at present cannot be taken for granted. Nor will similar quality stocks such as from the energy sector will be continuously available.
One other dimension is a larger public shareholding exposes the PSU to market discipline and ushers in greater accountability and transparency.
There is, of course, much that the government can do to nurture the PSUs. Autonomy for them is a big issue that will weigh with public policy long after the present round of public sector stake sale is completed.
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