Home / Market / Stock-market-news /  Govt announces plan to launch new exchange traded fund

New Delhi: The government on Tuesday invited bids from asset management companies (AMCs) for the launch of a new exchange traded fund (ETF) comprising shares of listed central public sector enterprises (CPSEs) and its stakes in other corporate entities.

Though the government did not elaborate on its stake sale plans in corporate entities, analysts said it was an indication towards including some of the stocks of Specified Undertaking of Unit Trust of India (SUUTI) such as ITC Ltd, Larsen and Toubro Ltd (L&T) and Axis Bank Ltd. The government has invited bids from bankers for managing sale of its stakes in these three companies. It holds an 11.17% stake in ITC, 8.16% in L&T and 11.53% in Axis Bank.

Dhirendra Kumar, chief executive of Value Research, a mutual fund tracker said though including SUUTI stakes in the proposed ETF may make it more attractive, government needs a long-term strategy for disinvestment. “Government ownership itself is a big disadvantage. Only through privatization the government can unlock the true value in some of these publicly held companies. It should have a well-formulated policy of what kind of business it should be running, if at all," he added.

The proposed new ETF will be in addition to the existing CPSE ETF launched in March 2014 and currently managed by Reliance Capital Ltd after Goldman Sachs sold its India mutual funds business to the company.

The new ETF will serve as an additional mechanism for the government to monetize its shareholdings in those CPSEs that eventually form part of the ETF basket, the newly created Department of Investment and Public Asset Management (DIPAM) said in a request for proposal (RFP) document posted on its website.

“The usual modes of undertaking a partial disinvestment offering of a CPSE to the market includes initial/further public offering, offer for sale through the stock exchange and Institutional Placement programme," it added. “The New ETF could be launched as a New Fund Offer (NFO) followed by Further Fund Offer (FFO)/Tap Mechanism/Tranche or in other additional offering which the government may deem fit to launch," said the RFP document.

DIPAM said the government may provide appropriate discount for different investors in the form of a suitable mix of upfront and back-end loyalty discounts.

AMCs registered with the market regulator, Securities and Exchange Board of India (Sebi), with at least five years of experience of fund management and assets under management of no less than 2,500 crore have been asked to apply by 24 August. The AMC will be required to work with the government and the adviser in all aspects of creating, launching and managing the proposed new ETF.

The government will formulate the new ETF basket after taking into account the opinion of the AMC and the adviser with an aim to structure a marketable new ETF product. “However, the decision of the government in terms of the proposed new ETF stock basket shall be final and binding," added DIPAM.

The government has set a divestment target of 56,500 crore for 2016-17, of which 36,000 crore is expected to come from minority stake sales in state-owned companies and 20,500 crore from strategic sales in both profit-making and loss-making state-owned companies.

So far, the government has garnered 3,183 crore from minority stake sales in NHPC Ltd, Indian Oil Corporation Ltd and NTPC Ltd.

The government has lined up stake sales in two fertilizer companies—Rashtriya Chemicals and Fertilizers Ltd and National Fertilizers Ltd. It has also announced its intention to sell stakes in iron ore mining company NMDC Ltd, state-owned trading firms MMTC Ltd and State Trading Corporation of India Ltd and Oil India Ltd.

The bankers who win the mandate will advise DIPAM on the sale of the shares held in the three companies either through a offer for sale, block deal, bulk deal, regular sale through stock exchange or any such other mechanism subject to guidelines set by Sebi.

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