New Delhi: At a time when companies are increasingly leery of tapping the capital market, given the volatile market conditions, the finance ministry is putting pressure on state-run firms to sell shares and become publicly traded entities.
An 11 May letter from the expenditure department, posted on the finance ministry’s website, entrusted the task of nudging unlisted central public sector enterprises (CPSEs) to the financial advisers on their boards.
“Financial advisers are requested to advise the CPSEs that, consequent to listing, such companies would be better able to tap the capital market for capital expenditure requirements instead of depending on government finances,” the letter said.
Timing factor: Minister for heavy industries Praful Patel says market sentiment is not conducive for selling shares in public sector firms. (Pradeep Gaur/Mint)
The expenditure department also attached a letter from the disinvestment department’s additional secretary, Sidhartha Pradhan, which listed the benefits of stock market listings. Listings will improve corporate governance, deepen capital markets by spreading the equity culture and unlock value for stakeholders, it said.
The prodding comes at a time when market volatility is deterring companies from selling shares and investors from buying amid concerns over India’s slowing economic growth, coupled with high inflation, and fiscal and current account deficits.
Indian stocks tumbled 13% since hitting a 2012 peak in mid-February. On Wednesday, the 30-share BSE Sensex index fell 1.83% to 16,030.09 points.
Although the current market conditions are not conducive for divesting stakes in state-run companies, it is good to have a blueprint ready, said HDFC Bank Ltd chief economist Abheek Barua.
“It is clearly not the right time to list PSUs (public sector units). However, the process can be initiated so that things do not get delayed when market condition improves,” Barua said.
The government’s divestment policy has come under severe criticism in recent months.
The parliamentary standing committee of finance, in its latest report, held that the objective of disinvestment had been reduced to a deficit-bridging exercise, treating CPSEs as a “milching cow”, rather than using divestment as a long-term instrument to improve the functioning of state-run companies.
The committee, headed by former finance minister and Bharatiya Janata Party leader Yashwant Sinha, also expressed its disapproval about the manner in which the divestment of a stake in Oil and Natural Gas Corp. Ltd (ONGC) was dealt with.
The finance ministry was widely seen to have roped in Life Insurance Corporation of India (LIC) at the last moment to purchase 377 million ONGC shares for Rs 11,069.6 crore in March, when investors did not show enough interest in the ONGC share auction.
Both the finance ministry and LIC maintained that it was an independent investment decision taken by the latter.
“It was nothing but mere financial engineering to shift money from one pocket of the exchequer to the other,” the standing committee report said.
Even minister for heavy industries and public enterprises Praful Patel said on Wednesday that stock market sentiment was not conducive for selling shares in public sector companies. “As and when the market sentiment improves, more and more PSUs will be offered for a partial disinvestment,” he told reporters.
The disinvestment department has said that state-owned Rashtriya Ispat Nigam Ltd (RINL) will be the first state-owned firm to be listed in the current fiscal year.
RINL is expected to file its draft red herring prospectus for the initial public offering with market regulator Securities and Exchange Board of India on Thursday. The government is likely to divest 10% of its stake in the company.
Other state-run companies lined up for share sales in the current fiscal include Steel Authority of India Ltd, Bharat Heavy Electricals Ltd, Hindustan Copper Ltd, Oil India Ltd, and Hindustan Aeronautics Ltd.
The government has fixed a target of raising Rs 30,000 crore by divesting stakes in state-run firms in the current fiscal. In the last fiscal, the government could raise only Rs 13,894 crore against a target of Rs 40,000 crore.
PTI and Reuters contributed to the story.