Govt puts off PSU selloff via buyback

Petroleum, Coal Mins Not In Favour As Move Will Hit Cash Balance Of Cos

New Delhi/Mumbai: The Union Cabinet on Wednesday deferred a decision on a proposal to raise Rs 40,000 crore from divestment of PSU stakes through buyback and other modes following interministerial differences over the matter. Market players are surprised by the move since the decision comes a day after market regulator Sebi paved the way for divestment through the auction route. 

    "The buyback proposal came up for discussion but a decision on the proposal has been deferred," sources said. The Department of Disinvestment (DoD), under the finance ministry, has identified about two-dozen cash rich public sector enterprises with a total balance of nearly Rs 2 lakh crore, and had sought opinion of respective ministries on disinvestment through the buyback mode. 
    Sources said several ministries, like petroleum and coal, were not in favour of the buyback proposal as the move would have impacted the cash balance of PSUs under them. The companies which have been identified by the government for stake sale include SAIL, NMDC, ONGC, NTPC, Coal India, Oil India, MMTC, 
    Neyveli Lignite, NHPC, BHEL and GAIL. 
    Some sources also said the issue could not be taken up due to paucity of time. The delay in the approval could raise the anxiety level of the disinvestment department which is banking on the move to raise Rs 40,000 crore to make up for the shortfall in the disinvestment target. 
    On Tuesday, market regulator Sebi had allowed promoters with more than 75% stake in private sector companies and the government with more than 90% stake in public sector undertakings (PSUs) to reduce their holding through an auction to institutional players, a move that would bolster the government's efforts to meet its disinvestment targets. The regulator had also allowed promoters of top 100 companies in terms of market capitalization to reduce their stakes through auctions to qualified institutional players or through buyback of shares in a proportionate basis. Market players believe that the Sebi decision, which they said was a step in the right direction, was taken primarily to help the government meet its divestment target. In addition, the new rules were tailormade to help companies to complete the process of selling shares within days, as against the normal process, like in a follow-on offering, that can take months. 
    As market conditions are not conducive for disinvestment through public offer route, the DoD had been planning to raise funds through other methods like buyback and cross-holding among PSUs. Under the buyback mode, the government can raise money by selling its equity in the company to the PSU itself. 
    So far this fiscal, the government has been able to raise Rs 1,145 crore from the Power Finance Corp's follow-on offer. It had to shelve its plans to sell stakes in SAIL, ONGC, IOC and several other PSUs due to bad market conditions. In ONGC, even after printing the application forms for the follow-on offering, the government pulled backed due to market volatility. 
    Wi t h i n p u t s f r o m a g e n c i e s NOWHERE NEAR THE TARGET

• Under the buyback mode, the government can raise money by selling its equity in the company to the PSU itself 

• The govt planned to raise Rs 40,000 crore through divestment this fiscal 

• So far, the government has been able to raise only Rs 1,145 crore from the PFC follow-on offer