Time to Sell for the Government

Will the government be able to meet its divestment target this year at least? Going by what it earned from the divestment of its stake in NMDC it looks likely that it will. The markets are looking up and the sentiment is positive enough to prompt it to come up with more disinvestment ideas over the immediate future. After all if has to mop up the targeted Rs 30000 crore before year end, it has to act fast.

Its experience with the stake sale of Hindustan Copper Ltd was poor, but the NMDC FPO on a contrarian note got a far better response. In the NMDC FPO the government offered 39.65 crore shares and which got subscribed almost 1.7 times the offer, particularly because of the good response it received from foreign institutional investors as well as domestic institutional investors. This was the first major PSU issue which was subscribed fully without the darling of bailouts, our own LIC, not being pressured into buying shares in the issue. It isn’t that it didn’t buy into the issue though. LIC invested close to Rs 2000 crore in the NMDC issue.

Inspired by its recent success, the government is now in a hurry to launch stake sales of other public sector undertakings (PSUs) in the remaining part of this financial year. Most probably, the next big one on the block will be state-owned power utility, NTPC. The government has approved the sale of its 9.5% stake in this company which is the country's largest power producer. This will happen anywhere after the 15th of January next year. It is planning to sell almost 78.33 crore shares and expects to generate around Rs 13000 crore at the current market price.

Moreover, the department of disinvestment (DoD) is confident of coming up with the FPO of Oil India before NTPC. The details of the offering are still not available in public domain. The DoD has also lined up other PSUs like Nalco and Sail for divestment. As per media reports It intends to sell a 12.5% stake in Nalco and a 10% stake in Sail. Both these offers for sale are expected to happen somewhere in late February or early March. The department has also lined up a sale of stake in heavy engineering major BHEL. However, this OFS will not probably happen until late March as some issues need to be sorted out as per DoD officials. The initial public offering (IPO) in Rashriya Ispat Nigam Ltd, which is expected to raise almost Rs 2500 crore for the government, is likely to be deferred.

Further, DoD officials are confident that there would be no need to seek support from state-owned DIIs such as LIC in these forthcoming disinvestments. LIC has become the government's in-house source of funding in such cases where investors have turned their backs on government company IPOs and also when it seeks to stabilize the market in times of distress. LIC subscribed to the sale of Oil & Natural Gas Corp held last fiscal as well as to the Hindustan Copper issue that came up this year. Interestingly, the government has amended rules to allow LIC to hold up to 30% in a company, against the 10% limit that is in place for other peers. Watch this space for more on LIC and its market operations. For now look out for good government companies that will come your way through the primary market route as these will add a whole lot of value to your portfolios.