Having set the ball rolling for disinvestment in public sector firms, the newly elected Congress led UPA government has given a much needed fillip to the primary market. The move is likely to kick start with a foreign road show calendar aimed at attracting institutional investors to the public issues of state-run firms such as Oil India (OIL) and NHPC, the country’s largest hydro power company. The government holds a 98.13% stake in OIL while NHPC is a 100% state-owned company.
The road show for OIL, led by an inter-ministerial group, is expected to start in early August, followed by that for NHPC if market conditions remain stable, according to an Economic Times report.
While OIL is planning to raise Rs 1,300 crore ($ 270 million) through a public float, NHPC plans to raise an estimated Rs 2,500 crore ($520 million) through the offering. Besides diluting its stake through the issue of new shares, the government is also expected to sell some of its own shares to raise money to fund the ballooning fiscal deficit.
It is anticipated that the government will offload 10% in OIL and 5% in NHPC. So, the actual equity dilution in these could be anywhere between 10% and 25% each. The government had used this route to raise funds during the NTPC IPO, where the government offered 5% of its stake along with the public offering. Both NHPC and OIL are expected to be listed before September-end, so that the regulatory approvals by capital market regulator SEBI, does not lapse.
OIL’s lead managers for IPO are HSBC, Citigroup and Morgan Stanley while NHPC is Managed by SBI Capital Markets, Kotak Mahindra Capital Company and Enam Securities Private Ltd.
The government had earlier called off the three-week-long foreign road shows planned for OIL last November as market conditions had deteriorated and investor appetite took a beating.
Disinvestment ministry redux
Meanwhile, the government is resurrecting the ministry of disinvestment to raise resources by selling its shareholding in public sector companies. Montek Singh Ahluwalia, Former Deputy Chairman of the Planning Commission (who was a front-runner and PM Manmohan Singh’s choice for the post of finance minister) is among the names short listed to head the new ministry. The new disinvestment minister is likely to hold Cabinet-rank, according to this report.
The department of disinvestment is currently headed by Disinvestment Secretary Rahul Khullar. Originally set up under the BJP-led National Democratic Alliance, the ministry was converted into a department under the finance ministry in 2004 when the United Progressive Alliance (UPA) first came to power. This was to appease the Left parties who opposed disinvestment.
Some of the firms which saw action include NMDC (where government owns 98.39%), MMTC (99.34%), Kudremukh Iron Ore (99%), HMT (98.35%), NFL (97.64%), Neyveli Lignite (93.56%), Rashtriya Chemical (92.5%), STC (91%), EIL (90.4%), ITDC (89.97%), Ircon (99.7%), Hindustan Cables (99.6%), Fertilisers & Chemicals (97.38%), Scooters India (95.37%), Andrew Yule (93.26%) and Hindustan Photo Films(90.4%).
Apparently, the government has selected over 40 companies in which it is planning to divest part of its shareholding through the stock market. It includes 15 listed entities in which the government holds more than 90 per cent.
Divestment in these companies will not involve a strategic sale of shares or a change of management. Hence, the government believes that it is unlikely to face resistance from other political parties. The move will also help comply with the stock exchange listing norms, under which a minimum of 10% public float is mandatory.
Besides, around 25 wholly owned companies with a net worth of Rs 200 crore that have earned a net profit in each of the last three years have been chosen for selective disinvestment. These include BSNL, Rashtriya Ispat Nigam, Coal India, Hudco, Export Credit Guarantee Corporation, Indian Railway Finance Corporation and North East Electric Power Corporation Ltd.
If the disinvestment process goes as planned, the government could raise upwards of $10 billion from the proceeds.