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Business News/ Politics / Policy/  Govt turns agile in its approach towards divestment

Mumbai: With support from equity markets, the government disinvestment strategy has turned nimble. It has asked merchant bankers to be ready to launch divestment issues at short notice.

The government has concluded two divestment deals in the last two weeks. On Wednesday, it launched a 5% share sale in Container Corp. of India Ltd (Concor), which will help it raise almost 1,165 crore. Last month, the government raised almost 5,000 crore by selling 5% stake in power producer NTPC Ltd.

There may be another one before the financial year ends.

“The government is clearly focused on divestment and we might see at least another disinvestment deal before the end of the year," said a banker familiar with the plans, without disclosing the company that could go to the markets. He did not want to be named.

The agility with which the government has launched two deals in the last 15 days is not surprising, given the rigorous preparation of the concerned government departments, said another banker on condition of anonymity.

“The government is literally prepared to launch these divestment offers on an everyday basis. They are keeping us ready and we are also updating them weekly," he said.

“They are taking stock of things on regular basis. Marketing efforts are happening on a regular basis and merchant bankers have been asked to show regularly what they are doing for marketing," he said, clarifying that these are not deal launch specific marketing efforts.

The government has mandated merchant bankers for divestment issuances of companies such as Bharat Electronics Ltd, National Aluminum Co. Ltd, Hindustan Copper Ltd and Coal India Ltd.

Meanwhile, the government it is also trying to avoid a pattern in its divestment strategy.“The government doesn’t want to show a pattern in its approach to launching deals, because when people see that there is a pattern they hammer the price. So, they may signal left, but turn right," said a third person aware of the developments, on the condition of anonymity.

However, some bankers said that with the budget behind it, the government might not have a pressing need to go ahead with these launches in the near term.

“While they have the intention to launch, there is no compelling reason to launch in the near term. The budget is already past. They might not look at launching another deal unless the window of opportunity so good and price is too enticing," said another person aware of the development.

According to Prithvi Haldea, chairman of Prime Database Group, if the markets don’t turn bad, then the chances of government launching more share sales are high.

“With the markets down from their highs, it makes sense for institutional investors to acquire shares of good government companies at current prices," he said, referring to the institutional investor interest in the share sales of NTPC and Concor.

The Concor share sale, which concluded on Wednesday, is the seventh disinvestment offer from the government in this fiscal year.

So far this year, the government has sold a part of its stake in firms such as NTPC, Rural Electrification Corp. Ltd, Power Finance Corp. Ltd, India Oil Corp. Ltd, Dredging Corp. of India Ltd and Engineers India Ltd, raising about 18,277 crore. The figure, however, falls short of its target of 41,000 crore.

In the Union budget on 29 February, the government said that it aims to raise 56,500 crore by selling stakes in state-owned units in 2016-17, of which 36,000 crore will come from minority stake sales and 20,500 crore from strategic stake sales.

This is 19% lower than the 69,500 crore that the government targeted in the last budget.

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Swaraj Singh Dhanjal
" Based in Mumbai, Swaraj Singh Dhanjal is responsible for Mint’s corporate news coverage. For the past eight years he has been writing on the biggest deals in private equity, venture capital, IPO market and corporate mergers and acquisitions. An engineer and an MBA, he started his journalism career in 2014 with Mint. "
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Updated: 10 Mar 2016, 01:28 PM IST
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