SUUTI stake sale will be extremely useful: disinvestment secretary
6 min read 04 Mar 2015, 11:45 PM ISTGovernment open to selling majority stake in some state-owned firms, says disinvestment secretary Aradhana Johri
Premium(Ramesh Pathania/Mint)
The finance ministry is looking to sell a part of the government’s stake in a bunch of private companies in SUUTI (Specified Undertaking of UTI) to meet the ambitious disinvestment target of ₹ 69,500 crore, disinvestment secretary Aradhana Johri said.
In an interview, the 1980 batch Indian Administrative Service (IAS) officer from the Uttar Pradesh cadre said the ministry may also look at launching another exchange-traded fund (ETF) comprising stocks of central public sector enterprises (CPSEs) if there is demand from retail investors.
Johri also said the government is open to selling a majority stake in some state-owned firms though such publicly held companies are yet to be identified. Edited excerpts:
Given the past experience of missing the disinvestment targets year after year, is there a new strategy to meet the ambitious target for 2015-16?
We have to disaggregate that statement of missing the target. Every year has to be seen (differently). Between 2000-14, the average was ₹ 9,500 crore. In 2014-15, it was ₹ 24,200 crore. It was the highest in any year. Last year, like previous years, the problem was we started late. Normally, in the last quarter, 66% stake sale used to be done. This year, 93% was done in the last quarter.
Now for next year, we will not wait for the last quarter. We will begin early. This year, we have also identified a whole lot of stocks and, hence, we have a larger pool to choose from. We started this exercise in December. We call it a rolling plan. We have a seamless transition to the next fiscal year. This has two or three benefits. There is no delay because you have approvals ready. Also the stock does not get hammered because the market is guessing.
Do you think the government’s over-reliance on disinvestment as a revenue generating exercise to meet its fiscal deficit target is a burden on the process? Should the government keep the divestment process out of its revenue raising targets?
Today also a National Investment Fund is there, and the receipts of disinvestment go into that fund. There is also a National Infrastructure Fund. To carry that argument forward more logically, there is scope for looking how you can position these funds. Government is also giving money for infrastructure. Could you channelize this money for infrastructure? That is something that has to be worked out. Conceptually, perhaps, it is a good idea to use such receipts for capital expenditure. But when the government sets a target, whether it is a revenue raising target or not, you have to meet the target.
Critics have often pointed out at minuscule discounts given to retail participants for the lack of enthusiasm among them for the government’s disinvestment process.
It is not correct that minuscule discounts are given. If you convert a 5% discount in Coal India Ltd stock, it comes to around ₹ 18, which is a lot. It makes it very, very profitable. And to get ₹ 1,800 crore retail participation in a day, I think it is a substantial achievement. It is equal to two normal offerings completely. Sometimes, when you give too much of discount, people calculate and they can short sell the stock and bring the stock price down. So that has also to be kept in mind.
Since you are on the topic of retail, I think a lot of market-making needs to be done and not just quick-fix of a discount. We need to have much more active demat accounts, much more literacy of investors. A lot of retail investors, because of risk and lack of technical knowledge, prefer the mutual fund route, or they would like to go on ETF (exchange-traded fund) route.
Do you think the falling commodity prices, especially oil, metal and mines, will impact your ability to achieve the disinvestment target?
Definitely, we have to watch the market. Falling prices are actually good for oil marketing companies, while rising prices are good for upstream oil firms. Unfortunately, the oil marketing firms have made a lot of inventory losses. But in many stocks, the Indian market behaves differently than the global market. For example, there was a glut in iron-ore globally, but a shortage in India. As the economy as well as the infrastructure sector picks up, for the core sector, you will have much more domestic demand. But yes, we would prefer to sell a stock when there is demand.
While FPO (follow-on public offer) has been a favourite for government stake sale of late, the finance ministry has also launched an ETF with success. Is there a plan to launch another ETF for selling more government stakes through the existing ETF?
Why not? We already have a product. In terms of time frame, selling stocks through the current ETF could be quicker. But that does not preclude looking at other ETFs. In ETF, you have to get your product mix right. I see potential for that (another ETF). There is merit in it also because it lessens the risk for investors. Also, it reduces the hammering of the stock, it has less volatility in the price. Basically, it is a tool for retail. It would be a desirable thing if there is appetite for it from retailers.
While you may not like to reveal the names of state-owned firms that will go for disinvestment...
I am so glad that people come to me with that. (Smiles)
...But in numbers, how many stake sales you are targeting in 12 months?
There is a limit to that. It will be limited by the market appetite, not by the supply of it. We will have our approvals in place. We will launch (the stake sale) when the market appetite is there. As of now, I am concerned with getting as much approvals as possible, looking at the market and starting the process.
SUUTI has been in the list for stake sale for a few years. Will it go under the hammer this year?
It is not my mandate, it is the mandate of the department of economic affairs, but I hope something happens. I believe the companies are very good, and the valuation of more than ₹ 60,000 crore. We have got a huge target. SUUTI stake sale will be extremely useful for meeting that target. And also in keeping with the government policy of spreading wealth in the market. After all, they are private companies we are holding stakes in. So I hope that would be coming. But they can’t sell the whole stock in one go. It has to be done in tranches. But even then, it is a substantial amount.
The 14th Finance Commission says disinvestment should form part of the divisible pool to be shared with states.
When a CPSE (central public sector enterprise) comes up in a state, employment is generated in that state. The corporate social responsibility (CSR) money is put in development. They pay all state bills. And, ultimately, taxes are also shared with the state governments. So there are two schools of thoughts in that.
The budget also talks about strategic stake sales and strategic partners. What kind of strategic partners are you looking at?
As I understand, strategic disinvestment means when you are transferring the control. Strategic partner is a corollary, the philosophy is strategic control. Balco and Hindustan Zinc do not come in the category of strategic sale.
Which public sector units (PSUs) you are looking at for strategic stake sale?
There is no identification of such PSUs. It is only a statement of intent. We will be working on it.
Is the government is ready to transfer control in some PSUs?
It was always in the policy. Government has never been not ready to do it. It is just that a renewed emphasis has been given by a statement of intent, the details of which are to be worked out.
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