Cabinet clears divestment of Coal India, Hindustan Copper

Cabinet clears divestment of Coal India, Hindustan Copper

New Delhi: The government on Tuesday announced the sale of a 10% stake each in two state-owned companies as part of a plan to raise Rs40,000 crore from the disposal of state assets this fiscal year as finance minister Pranab Mukherjee strives to curb the fiscal deficit.

The Cabinet Committee on Economic Affairs (CCEA) cleared the divestment of equity in Coal India Ltd (CIL), the country’s largest coal mining firm. It also approved the sale of shares in Hindustan Copper Ltd along with the issue of fresh equity of an equivalent amount. The firm is involved in mining, smelting, refining and casting of refined copper.

Mukherjee, who aims to trim the fiscal deficit to 5.5% of gross domestic product by the 31 March fiscal year-end from a revised 6.6% last year, has more than the asset sales to bank on. This is mainly thanks to the Rs1 trillion the government raised from auctioning spectrum for high-speed mobile and broadband services, three times the amount he’d estimated in the Budget in February.

With economic growth not showing any signs of letting up, this will mean the government should be well placed to spend on its flagship social welfare programmes without derailing the attempt at fiscal consolidation.

The government plans to sell its stake in at least 10 state-run companies this fiscal, including MMTC Ltd, Steel Authority of India Ltd and Rashtriya Ispat Nigam Ltd. It raised Rs25,000 crore through sale of stakes in Oil India Ltd, NMDC Ltd, Rural Electrification Corp. Ltd and NTPC Ltd last year.

The Congress party-led United Progressive Alliance (UPA), the ruling coalition, was unable to make any headway in disinvestment during its first five-year stint that ended in 2009 because of resistance from the Communists, its allies at the time.

“The disinvestment of Coal India would be through book-building process in the domestic market," home minister P. Chidambaram told reporters. “One percent of the equity will be offered to the employees of Coal India and its eight subsidiaries."

Book building is the process of determining the price of a public offer of shares, based on demand from investors.

The government has decided to offer a 5% discount to retail investors and employees of the company and its subsidiaries to encourage people from these groups to buy CIL shares.

“We expect the IPO (initial public offer) to come to the market by end September. The valuation is to be decided by the group of ministers," said Partha S. Bhattacharyya, chairman of CIL.

India has a known coal resource base of 264,000 mt, the fourth largest in the world, of which proven reserves are around 101,000 mt.

While welcoming the disinvestment decision, N.R. Bhanumurthy, professor at the National Institute for Public Finance and Policy, or NIPFP, a Delhi-based think tank, was doubtful about the success of the public issues.

“With the sentiments of retail investors being down, it should not happen that issues don’t find takers. It happened with Satluj Jal Vidyut Nigam Ltd (SJVNL) where after a couple of days of issue of shares public sector banks were asked to buy them," Bhanumurthy said.

With foreign institutional investors not being present in large numbers, the stake sale may face problems, he said. SJVNL’s divestment took place earlier this fiscal.

CIL’s paid-up equity capital is Rs6,316.36 crore and that of Hindustan Copper is Rs462.61 crore.

“In conjunction with the issue of the equity, government will also disinvest its 10% pre-issued, paid-up capital" in Hindustan Copper, Chidambaram said.

The government plans to raise a total of Rs4,000 crore—Rs2,000 crore through the stake sale and Rs2,000 crore by way of equity infusion, Shakeel Ahmad, Hindustan Copper’s chairman and managing director, had said earlier.

The stake-sale process has not been without hiccups. The cabinet postponed a decision on the issue last week after Trinamool Congress (TMC) chief and railway minister Mamata Banerjee expressed reservations over the move.

According to a minister who didn’t want to be named, the matter had been listed on the agenda for the 10 June meeting of the CCEA. After Banerjee expressed her concerns, the Prime Minister suggested that the sell-off in both companies would be considered in “due course."

Banerjee, whose TMC recently swept civic polls in West Bengal, later met finance minister Pranab Mukherjee thrice, apparently to discuss various political issues, including the divestment plan.

With the government keen to pursue the divestment, Mukherjee convinced his party’s key ally that the move would not have any adverse political impact.

Banerjee later agreed that the matter could be taken up in the CCEA when she wasn’t present, according to the minister cited above.

The TMC is concerned that that the divestment plan will upset workers at Coal India, which has its corporate headquarters and a major presence in West Bengal.

“The move would antagonize the workers and it will not be good for the party ahead of next year’s assembly elections," said a senior TMC leader, who did not want to be identified.

Utpal Bhaskar and Liz Mathew contributed to this story.