New Delhi: State-owned companies should consider listing in the country’s capital markets in order to fully “unlock” their potential, finance minister P. Chidambaram said on Friday, causing one market analyst to say that the government should divest part of its stake in these companies.
That would effectively revive a disinvestment programme that was scrapped in 2004.
“The listing should be done by divesting the government’s stake, because it would provide money for social programmes. The money could go into the National Investment Fund,” said Prithvi Haldea, founder and managing director of Praxis Consulting & Information Services Pvt. Ltd, a primary markets research firm.
The National Investment Fund will part-finance social programmes, create jobs and pay for the improvement of telecommunications, roads, health care and education.
A consultant welcomed the finance minister’s comments, saying it would also serve to increase the width and depth of the Indian marketplace.
“While initial public reaction may be lukewarm and there may not be a very meaningful sale to the public, in the long run, it is beneficial,” said Ashish Singh, managing director at Bain and Co. India, a management consultancy. “The listing wouldn’t have much impact unless it’s a majority stake,” he added.
Chidambaram was speaking at a function to confer navratna status, which would grant certain financial autonomy to three state-owned companies—defence aircraft maker Hindustan Aeronautics Ltd (HAL), electronic goods manufacturer Bharat Electronics Ltd (BEL) and Power Finance Corp. Ltd (PFC).
The share of India’s 250 state-run companies, which are controlled by the Union government, has been cut by more than half to 27% of India’s industrial production in its 60 years of independence. Only 44 public sector companies are listed on the stock exchanges, but their shares have performed better than most others.
The Bombay Stock Exchange’s 42-company index for state enterprises has advanced about 12% in 2007, compared with the 5.3% gain for the exchange’s 30-stock benchmark index, Sensex.
The finance minister said that companies could hide for a while under “tariff walls and mediocrity”, but the markets would be the best way to decide a company’s potential.
Oil & Natural Gas Corp. and other big state-run companies, described by the first Prime Minister Jawaharlal Nehru as “temples of modern India”, account for one-fifth of the country’s $1 trillion (Rs41 trillion) market capitalization and 11.12% of the gross domestic product, though several have a limited number of shares open to private ownership.
Four months ago, the Centre approved the sale of 5% each in National Hydroelectric Power Corp. and Power Grid Corp., and 10% of Rural Electrification Corp., reviving an assets-sale programme suspended last year after opposition from Communist allies. Proceeds from the sale will go to the National Investment Fund.
The ruling United Progressive Alliance (UPA) government itself has been opposed to divesting its stake in public sector firms, especially profitable ones, and a line to this effect is part of the National Common Minimum Programme, a set of guidelines that the government adopted soon after it came to power in May 2004. The National Democratic Alliance government, which ruled India before UPA, had an active disinvestment programme and divested part of its stake in several public sector firms, including Videsh Sanchar Nigam Ltd.
Chidambaram said that there was a need to “re-assess the role of public sector companies in a growing economy, where the market is no longer India, but the world”.
The government would remain committed to helping public sector companies, he said, referring to equity support of Rs31,402 crore and loans worth Rs18,667 crore provided in the last four years by the UPA government to such firms.
The award of navratna, or nine jewels, status to HAL, PFC and BEL brings the total number of such companies to 12. The status allows these companies operational and financial autonomy, including the right to invest up to Rs1,000 crore or 15% of their net worth in joint ventures without seeking clearance from the finance ministry.
(Bloomberg contributed to this story.)