Rs 54000 crore At Any Cost

Last year when P Chidambaram talked about garnering Rs 54000 crore through the divestment of government’s stake in companies it owns, many raised eyebrows, some in surprise some in suspicion of how would he manage this feat. But PC being the statesman that he is has managed to come very close or rather even surpass what he had budgeted.  In a bid to finance the ever increasing fiscal deficit, the Finance Minster is leaving no stone unturned to ensure that he gets in what he wants. 

Throwing the interest of all concerned stakeholder out of the window, the Finance Minister has begun arm twisting the cash rich PSUs into doling out liberal special dividends. Coal India shelled almost Rs 16000 crore just a fortnight ago easing some pressure on the Ministry. Point is, the money was supposed to come from stake sale of companies and not skimmed from their balance sheets. Rs 40000 crore was budgeted to come from the disinvestment of companies like IOC, Coal India, NHPC and from floating fresh IPOs of HAL and RINL.  

The jugglery just doesn’t stop at squeezing the balance sheets off cash from PSUs. The government is also siphoning off the money belonging to the PSUs by forcing them to cross sell their stakes between themselves. 

The minority shareholders of these companies who are shelling out that extra cash to fill the government coffers via special dividends are deriving absolutely no benefit out of it. But, looking at the pace of things, the government is sure to end up easily garnering the Rs 55000 crore that it wanted to.  A little more aggression could also help it cross over to Rs 60000 crore. 

There is no harm in being strategically smart. But any action that hampers the growth of our homegrown entities is an unpardonable crime. The most important impact of this will come on the valuations of the PSUs which could have been ready for a market divestment as the investment climate improves further. Who would want to value a company higher where the cash reserves are being taken away for managing the financial mess of the government?

After Coal India, the FM has chalked out a definitive plan to raise more money in the fourth quarter. Accordingly a residual stake sale in Balco and Hindustan Zinc (HZL) in which the government holds 49 per cent and 29.5 per cent stake respectively will bring in the first rush of cash into its coffers. The CCEA (cabinet committee of economic affairs) has already cleared the sale of the HZL stake via the auction route and at its current prices it will fetch the government around Rs 17000 crore. Balco’s stake sale will also come in near future followed by a stake sale in Axis Bank. As per sources in the Finance Ministry the government wants to sell a 12% stake in Axis bank, though it holds more than 20% in it through SUUTI (Special Undertaking of Unit Trust of India). This move will get in Rs 6000 crore for it. 

In addition to the above the Department of Disinvestment (DOD) preparing to float the PSU ETFs and which will materialise soon. That route will get in as much as Rs 3000 to Rs 5000 crore for it. There are 44 listed PSUs on the bourses and the basket will be formed through these. 

Adding up all the figures, the net amount will easily cross Rs. 55000 crore and may reach Rs 60000 crore (see table). This is certainly a big relief for the government which is toiling very hard to keep its fiscal deficit under check at 4.8% of GDP.  Good for the government, but it will in no way create any lasting value for the ordinary investor on the street. Hope rests on assuming that the government will realize its folly of skimming the cash rich PSUs and let them thrive in a competitive environment by ploughing back their resources for their growth.