Stock Market

After Hindustan Copper, govt eyes stake sale in other PSUs

Sidhartha Shukla

In accordance with its plan to dilute share in public sector undertakings (PSUs), the government is now looking to sell some of its stake in NMDC , NALCO , BHEL via the offer for sale (OFS) route.

Government officials have told NewsRise that the Centre may divest through an OFS in companies that bought back government shares.

The official told that the government aims to raise Rs 5,000-7,000 crore in the period of October 2016-March 2017 by divesting in mid-sized companies.

The government may launch a second exchange traded fund ( ETF ) and further sell stake in Specified Undertaking of UTI (SUUTI) during October-March.

The government kicked off its divestment drive on a high note when it announced to sell its minority shareholdings in the Specified Undertaking of UTI (SUUTI) fund in July. But the plan hit a roadblock when it received a tepid response from investment bankers and had to pull back its request for proposal (RFP).

The government reissued the RFP, and also increased the number of merchant bankers to six from three to underwrite its stake sale.

SUUTI was formed in 2003 as an extension of the United Trust of India (UTI). It comprises 51 companies — 8 unlisted and the rest listed companies. Through SUUTI, the government holds minority stake in these companies and is planning to divest its shareholding. The government is mulling to divest through an offer for sale (OFS), a block deal, a bulk deal or just by a regular sale on stock exchanges.

Three blue-chip stocks – Axis Bank , ITC and  L&T – which contribute to approximately 95 percent of SUUTI’s holdings in value terms, can bring in around Rs 63,000 crore if divested completely.

To reach its divestment target of Rs 56,500 crore for this fiscal, the government has been on the front foot to raise revenue.

The government has already put 7 percent of its stake in Hindustan Copper  for sale through an OFS, that began today and will help to raise Rs 401 crore. It also plans to sell 10 percent stake in NMDC, for which an overseas roadshow was started on September 5. At current prices, a 10 percent sale in NMDC could earn the government around Rs 4,000 crore.

There was news that it might divest 5 percent of its stake in ONGC to raise around Rs 10,000-12,000 crore.

Of  the total divestment target, Rs 36,000 crore was projected to come from minority stake sale in PSUs, and the rest Rs 20,500 crore from strategic sale in both profit and loss-making companies.

After the sale of Hindustan Copper, the government will manage to raise Rs 2,716 crore, reports a  livemint article.

War scare may hamper divestment plans

After news came today that the Indian Army had conducted a surgical strike on the Line of Control (LoC) yesterday, the market trembled and saw its biggest one-day fall in three months. The Indian VIX index, a measure for market volatility, surged 25 percent, the most for this year after this news broke.

If things escalate further, the market might destabilise more which in turn may force the government to hold back on its divestment drive.

Over the last few years, both the UPA 2 and NDA governments have fallen short of their annual divestment target. At times, volatile market conditions were to blame while at others, investors did not find the target companies attractive enough at the price being quoted by the government.

Revenue from divestment can be used by the government of India to fulfill its infrastructure and growth promises.

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