Most of the blue-chip public sector companies (PSUs) lined up for disinvestment this year are reluctant to allow the government to reduce its stake.
Stake dilutions in the past have shown that there is no retail appetite and in the run up to the disinvestment there is a significant depreciation of the share prices.
So the government is now exploring the option of stake sale in selected PSUs by offering shares only to institutional investors — foreign as well as domestic — through the Institutional Placement Programme (IPP).
The department of disinvestment had, last year, also sought tax incentives for retail buyers in order to increase participation. Nothing has materialised on that front so far.
At present, the government reserves 20% of the issue size for retail investors, who are allowed to invest up to `2 lakh in the offer for sale (OFS). Also a 5% discount is offered to them over the bid price
The government has always used the OFS or follow-on public offer (FPO) route for disinvestments.
“In the past we have seen that correct market timing for both OFS or FPO is very difficult. The portions reserved for retail investment have remained unsubscribed and then LIC (LIfe Insurance Corporation) has been called in to buy that,” said a top official in the finance ministry, who did not wish to be named.
The finance ministry has drawn up a list of 16 candidates eligible for disinvestment such as ONGC, Oil India and Coal India. Most of these PSUs refused to comment saying that they will follow government policy on disinvestment.
An official in one of the 16 PSUs for disinvestment said that OFS and FPOs do little justice to their real worth. “We have stellar balance sheets, huge cash reserves but because of bad market timing our stake sale sees little interest,” said the official.
In 2012, market regulator Sebi allowed companies to take the IPP route to meet the minimum public shareholding norm. According to the rules, listed PSUs will have to raise their public shareholding to 25% by August 21, 2017.
Under IPP, the government can dilute up to 10% stake to qualified institutional buyers (QIBs) only. Also 25% of the shares have to be reserved for mutual funds and domestic institutions.
Sebi’s norms aimed to raise retail investment in PSUs and the IPP route would defeat that purpose. “The institutions buying PSU stake will off-load them in the market at a correct time and then they can be bought by retail investors,” said the government official quoted earlier.
The official further clarified that this proposal to follow the IPP route has already been cleared by a cabinet sub-committee, which includes the finance minister among others.
The government has set a disinvestment target of `56,500 crore for this 2016-17. It has raised `2,700 crore by divesting 11.36% stake in NHPC so far this fiscal.