New Delhi: The National Democratic Alliance government has finally made up its mind to sell minority stakes held in many listed and unlisted companies through the Specified Undertaking of the Unit Trust of India (SUUTI), which could boost its revenue by about ₹ 50,000 crore and help meet its asset-sale target.
In a notification put up on the website of SUUTI, an offshoot of the erstwhile state-run investment firm Unit Trust of India (UTI), the government invited bids from bankers for the mandate to manage the stake sales.
The government said it would appoint up to three qualified merchant bankers and selling brokers for “attending, assisting and advising on the SUUTI holdings for a period of three years".
Parliament bifurcated UTI in 2002, creating SUUTI and UTI Asset Management Co. Pvt. Ltd, the former holding the assured-return investment plans of UTI and the latter overseeing market-linked plans.
The bifurcation took place after UTI’s US-64 investment plan ran into trouble.
SUUTI has minority stakes in 51 listed and unlisted companies, with most of its value locked in Axis Bank Ltd (11.93% stake), ITC Ltd (11.17%), and Larsen and Toubro Ltd (L&T) (8.32%).
At current market prices, the government could raise ₹ 15,018.68 crore by selling its entire stake in Axis Bank. The government’s stakes in ITC and L&T can fetch ₹ 22,046.41 crore and ₹ 11,630.03 crore, respectively.
Emails sent to Axis Bank, ITC and L&T had not received a response till the time of going to print.
The asset sales would help the government meet its ambitious disinvestment target of ₹ 56,500 crore for 2016-17 and shrink a fiscal deficit projected at ₹ 5.33 trillion.
So far this fiscal year, the government has garnered ₹ 2,716.55 crore from a stake sale in NHPC Ltd, according to the department of investment and public asset management.
In addition to the list of 51 listed and unlisted entities, “SUUTI may also consider including other unlisted, illiquid and thinly traded equity shares to its list", said the document seeking bids from bankers.
The bankers who win the mandate will advise it on the sale of the shares held “in various companies either through the Offer For Sale (OFS), Block Deal, Bulk Deal, Regular sale through Stock Exchange or any such other mechanism subject to the Securities and Exchange Board of India (Sebi) Guidelines and other applicable Rules and Regulations," added the so-called request for proposal document.
The government has asked bidders to put in a single consolidated bid for the entire holdings of SUUTI. The sale process, however, will be carried out individually for the companies in its portfolio.
In March 2014, the government sold a 9% stake in Axis Bank held through SUUTI for over ₹ 5,500 crore.
There will always be “some doubts and inefficiencies" in any stake sale process, said J.N. Gupta, managing director of Stakeholders Empowerment Services, a proxy advisory firm.
“However, the government will have to make sure that it uses the money for the right purpose and not meeting revenue deficits alone. Otherwise, it will mean throwing away family silver," he added.
One can never time the market and the government should have sold the stakes held through SUUTI much earlier, said Prithvi Haldea, founder and chairman of Prime Database, a primary market tracker.
“I hope the government does not defer the sale further. As far as the companies and ownership are concerned, SUUTI holds some high-quality names for which the investors may get convinced to pay a premium to market price," he said.
“Ideally, the government should look to distribute some of the proceeds to compensate US-64 holders. Also, the government should make good use of the money and spend towards building public infrastructure. At the time of conducting SUUTI sale, the government should ensure it attracts domestic investors, especially retail investors, by offering some discount," added Haldea.
As part of its larger divestment plan, the government has lined up stake sales in two fertilizer companies—Rashtriya Chemicals and Fertilizers Ltd and National Fertilizers Ltd. The government has also announced its intention to sell stakes in iron ore mining company NMDC Ltd, state-owned trading firms MMTC Ltd and State Trading Corp. of India Ltd, and Oil India Ltd.
The government also intends to receive revenue in the form of dividends from cash-rich public sector companies such as Coal India Ltd and National Aluminium Co. Ltd.
A Mint analysis showed that 34 central public sector enterprises hold about ₹ 1.8 trillion in cash and equivalents—a war chest that may come in handy as the government pushes some of these firms to consider share buy-backs.
“We have seen market appetite for quality government stocks. So there will be investor interest in SUUTI sale. If no one participates, the government has the support of LIC (Life Insurance Corporation of India). There will be some amount of selling pressure on the stocks. The government’s intent of selling stakes looks real, because it requires funds. SUUTI sale may materialize in the next 6-12 months," said Ambareesh Baliga, an independent market analyst.