BackCPSE ETF may help govt raise funds, PSUs meet Sebi norms
CPSE ETF will serve the dual purpose of raising money for the exchequer and helping listed state-run firms achieve 25% public holding before 21 August
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Mumbai: The new exchange traded fund (ETF) announced by finance minister Arun Jaitley in the budget will serve the dual purpose of raising money for the exchequer and helping at least a dozen listed state-run firms achieve 25% public holding before a 21 August deadline, said two people familiar with the development.
The proposed ETF is likely to be managed by ICICI Prudential Asset Management Co. Ltd, which was appointed by the department of investment and public asset management (Dipam), they said. The government has an ambitious target of raising Rs72,500 crore from selling shares of companies it owns in 2017-18.
The ETF could be launched in the first quarter of the next financial year and will aim to raise up to Rs6,000 crore. At least 15 state-owned companies and banks have promoter stakes in excess of the 75% cap stipulated by the Securities and Exchange Board of India.
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At Thursday’s closing prices, the total value of their shares that need to be divested to meet the minimum public shareholding norm amounts to Rs21,224 crore. The list of companies includes Coal India Ltd, Rashtriya Chemicals and Fertilizers Ltd, SJVN Ltd, Indian Bank, Central Bank of India, Indian Overseas Bank, and Hindustan Copper Ltd.
Spokespersons for ICICI Prudential AMC and the ministry of finance did not respond to emails seeking comment. “Discussions are still on and things are yet to be formalized. The possibility of having CPSEs (central public sector enterprises or companies owned by the federal government) with less than 25% public shareholding cannot be ruled out in the new ETF being planned," said a top official at Dipam on condition of anonymity.
This will be the second ETF based on such companies after two successful floats of the first one in the current fiscal and 2014 which raised Rs6,000 crore and Rs3,000 crore respectively.
To be sure, not all state-owned firms with less than 25% public holding will be included in the ETF. According to one of the two people, firms that have only a marginal shortfall in the public holding may be excluded from the proposed ETF basket and the government may still opt for the offer-for-sale (OFS) route to divest its stake in such firms.
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“CPSEs with low public holding are likely to be bunched with state-run firms which are compliant with public holding norms but are capable of earning the government more money through further divestment if the market condition remains positive. It may also help capitalizing some public sector banks," added this person.
In the past three years, the CPSE ETF has given 21.25% average annual returns compared to the Nifty’s 15.16%.
Last month, Reliance Nippon Asset Management Co. Ltd launched the second tranche of the CPSE ETF. The government raised Rs6,000 crore through a follow-on offer.
According to Dipam, during the current financial year the government sold shares worth Rs31,013.67 crore in state-run companies; on 6 February the government sold 2% of its holding in ITC (through the specified undertaking of the Unit Trust of India, or SUUTI) worth Rs6,700 crore to LIC through a block deal.
The CPSE ETF was launched by Goldman Sachs Asset Management India in March 2014; it collected Rs3,000 crore from the public. Reliance Mutual Fund is managing the CPSE ETF after Goldman Sachs exited the mutual fund business in India.
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