New Delhi: The cabinet committee on economic affairs (CCEA) on Thursday approved the sale of a 9.5% stake in state-owned NTPC Ltd, the country’s largest power generator, to help meet the government’s target of raising Rs.30,000 core from asset divestments in the current fiscal year.
The Congress-led United Progressive Alliance government plans to raise some Rs.13,000 crore from the sale of 783.3 million shares in NTPC. Following the sale, the government’s stake in the power producer will drop to 75% from 84.5%.
“The stake sale has been approved. We are fully prepared. We will chart out a programme with the department of disinvestment for this offer and will hold roadshows,” chairman and managing director Arup Roy Choudhury said.
The share sale in NTPC, one of the public sector companies counted as a “maharatna”, comes at a time when it is battling concerns over supply of fuel such as coal and gas for its power plants. Fuel shortages have curtailed power generation, widening the gap between demand and supply in an already energy-short economy.
“The government will get a low valuation. From a shareholder’s perspective, the pricing should be right. However, the coal issue and the lower plant load factor seem to have been factored by the market,” said Rupesh Sankhe, a senior analyst at Karvy Stock Broking Ltd.
Another analyst agreed that the timing may not be ideal.
“In both commodities and energy sectors, there is an issue we are dealing with, which is maximizing the value. Currently, commodities are at the lower end of the cycle, so they should not be doing this now,” said Kameswara Rao, executive director (energy, utilities and mining) at audit and consulting firm PricewaterhouseCoopers.
The share sale is crucial for the government’s efforts to raise money to narrow its widening fiscal deficit and contain it within the targeted 5.3% of gross domestic product as tax revenue dwindles. The government’s net tax revenue in the first seven months of the fiscal (April-October) was Rs.2.5 trillion, or just 44% of the year-end target of Rs.5.7 trillion, because of a shortfall in corporate tax collection.
In the last fiscal, the government failed to meet its asset sale target of Rs.40,000 crore by a wide margin, managing to raise only Rs.13,894 crore. The government also suffered a setback when it attracted bids totalling just one-fourth of the Rs.40,000 crore it had originally expected to raise by selling second-generation telecom spectrum.
Thursday’s share sale announcement comes against the backdrop of the government’s decision to let state-run Life Insurance Corporation of India (LIC) to hold a stake of as much as 30% in other companies, against the 10% allowed for private sector insurers.
Some analysts have seen the decision as an attempt to get LIC to bail out the government in the event of muted investor interest. LIC came to the government’s rescue when state-owned explorer Oil and Natural Gas Corp. Ltd (ONGC) failed to attract sufficient investor interest in an auction of shares earlier this year; LIC purchased 377 million ONGC shares for Rs.1,069.6 crore in the March sale.
A.K. Singhal, director of finance at NTPC, declined to comment on the timing of the share sale. Another NTPC executive, requesting anonymity, said, “If we are not able to find enough takers, it may be LIC that could bail us out.”
NTPC is capable of generating 39,674 megawatts of electricity. The company posted a net profit of Rs.9,224 crore on revenue of Rs.64,830 crore in the year ended 31 March. It had a cash surplus of Rs.17,000 crore at the end of the fiscal year.
The government’s asset sale exercise will start on Friday with the auction of a 4% stake in Hindustan Copper Ltd expected to raise around Rs.900 crore.
The government may raise the size of the stake sale to 9.59% in case demand exceeds the shares on offer. The government’s holding will fall to 90% if it chooses to sell a 9.59% stake.
A senior official at Hindustan Copper, requesting anonymity, said the government has set a base price of Rs.155 a share for the company’s auction on Friday on the exchanges.
Shares of NTPC and Hindustan Copper rose 1.05% and 11.33%, respectively, on BSE on Thursday to close at Rs.163.70 and Rs.266.30, respectively. The BSE’s benchmark Sensex index gained 0.31% to end at 18,517.34 points.
Though the cabinet has cleared stake sales in public sector units such as Hindustan Aeronautics Ltd, MMTC Ltd, Neyveli Lignite Corp. Ltd, RITES Ltd and National Aluminium Co. Ltd for the current fiscal, it has failed to move ahead with any barring a sale of shares in National Buildings Construction Corp. Ltd through an initial public offering of Rs.124.97 crore.
Among other decisions on Thursday, the cabinet cleared the National Pharmaceutical Pricing Policy proposed by the group of ministers led by agriculture minister Sharad Pawar. The new formula is likely to lead to a marginal decrease in the prices of essential medicines.
The new policy will bring 348 molecules and 652 formulations under price control. The government currently sets the price of 74 drugs through a cost-linked pricing system, under which it collects cost data from companies and other sources, and fixes prices through a cost-plus-margin method.
CCEA also approved the pricing formula for procurement of bioethanol having a “floor price and a ceiling price”, to appease the sugar lobby. As part of the plan, the 5% mandatory ethanol blending with petrol across the country will be implemented from the 2012-13 sugar season. The committee also allowed for the import of ethanol in the case of a shortfall.
The cabinet committee on infrastructure also approved “for private participation in rail connectivity and capacity augmentation projects”.