Ways2trade: DIVESTMENT TO MAKE A COMEBACK AFTER 5 YRS

Sunday, May 24, 2009

DIVESTMENT TO MAKE A COMEBACK AFTER 5 YRS

WITH MAN AND HIS MEN FIRMLY IN THE SADDLE AND HINDRANCES OUT OF THE WAY, DIVESTMENT IS BACK ON THE DRAWING BOARD. A DILUTION OF STAKE IN TOP-RATED PUBLIC SECTOR UNDERTAKINGS COULD FETCH THE GOVERNMENT EYE-POPPING RETURNS AND HELP IT BRIDGE THE FISCAL DEFICIT

ISINVESTMENT, IF not outright privatisation, is back on the agenda — it figures in the Congress' election manifesto, and the Left parties are no longer in the ruling formation to oppose the move. This spells good news for the stock markets and
government finances. With disinvestment set to come out of the deep freeze after five years, officials in the finance and administrative ministries for various public sector enterprises have already started working on a roadmap.
    Finance ministry is also considering winding up of the national investment fund (NIF), kept outside the consolidated fund of India, into which disinvestment proceeds have been flowing. An announcement regarding this measure, which will help the new government address the mounting fiscal deficit, is expected during the budget session of the parliament, starting July.
    "We are working on a list of public sector companies that will be given priority in terms of listing. Wider consultation with all the stakeholders have to be conducted on this. But any specific time-frame regarding listing of public sector enterprises or for diluting government stakes cannot be made. It depends on many factors including market conditions and views of the respective administrative ministries and boards of public sector enterprises," said a finance ministry official. He also added that it is too early to make even a rough estimate regarding money that government could raise from divestments in the coming years.
    Estimates by financial services firms show that inflows to the government coffers could be huge over the years even if the government only dilutes stake in listed PSUs to 51%. Estimates by various investment bankers and brokerage houses show that the government holdings in listed state-owned companies are worth more than Rs 8.8 lakh crore and if the government dilutes stakes to 51% in the listed companies at current market prices, it could trigger an inflow of close to Rs 3 lakh crore. A dilution of 10% in top ten PSUs in terms of market valuation itself can bring in a whopping Rs 85,000 crore.
    The department of disinvestment (DoD), which looks into all matters of disinvestment of central government equity from central public sector enterprises, had earlier written to various administrative ministries asking the companies that are already sitting on necessary regulatory approvals in place to get listed before the regulatory approvals lapse. "Once the policy decisions are made regarding the listing, we will be able to get companies listed with in six months. If those approvals lapse then it will set listing of the companies back by another six months," said DoD secretary Rahul Khullar.
    The improved stock market conditions could give some of the companies more confidence and create a positive backdrop to the idea of getting listed. The process could kickoff slowly with firms that already have regulatory clearances to list shares, with the real privatisation — if it happens during the new government's tenure — likely to follow with a time lag. On the first trading day, after the decisive mandate, the value of government holding in the public sector enterprises had shot up by Rs 1.82 lakh crore. The market makers are also expecting the divestment in blue chip PSUs to shore up the primary markets. As long as the government maintains a majority stake, the PSUs are expected to welcome the move.