Government tastes success with new route to disinvestment
1 min read 23 Mar 2014, 05:25 PM ISTThe government's bold experiment of selling shares in public sector companies by creating an ETF has turned out to be an enormous success
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He who dares, wins. The central government’s bold experiment of selling shares in public sector companies by creating an exchange-traded fund (ETF) has turned out to be an enormous success. The ₹ 3,000-crore issue has been oversubscribed by 1.3-1.4 times, surprising even some of the managers of the issue.
What’s more, the issue didn’t sail through because of a large discount or even due to a large subscription by Life Insurance Corp. of India. In January this year, this column had predicted (wrongly, in hindsight) that these two factors could make or break the issue. In contrast, the government benefited from a sudden increase in demand for shares of government-owned companies, driven by the hope that a new government will turn around the fortunes of these companies.
The 10 shares in the ETF portfolio rose by a median rate of 10% between end-February and 18 March, the day the subscription to the issue opened. While GAIL (India) Ltd (down 0.04%) and Engineers India Ltd (up 26%) were outliers, the other eight stocks in the portfolio increased by between 8% and 12%.
The ETF issue may not have done as well if not for this jump in demand for government-owned companies. The government decided on a discount of only 5% for all investors, with an additional carrot of 6.6% discount for retail investors who hold their investments for a year. While the additional discount may have attracted some retail investors, in the case of institutional investors, the primary incentive wasn’t the discount but the chance to acquire a chunk of government-owned shares at a low impact cost.
The fact that the government set the fund’s target at ₹ 3,000 crore and got bids for over ₹ 4,000 crore shows clearly that even they underestimated the demand for the issue. The good news is that this innovation in the disinvestment programme has gotten off to an encouraging start and can be tapped in the future as well. While some departments of the government may be accused of policy paralysis, the department of disinvestment has got its timing exactly right.
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