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The divestment target for this fiscal includes an IPO of LIC.mint
The divestment target for this fiscal includes an IPO of LIC.mint

Govt’s divestment efforts may get a 15,000-cr boost

Paring its stake in 21 PSUs to meet the 25% public shareholding norm can aid Centre

A resurgent stock market is offering relief and confidence to the government to meet its ambitious disinvestment target of 2.1 trillion for this fiscal. So far, the government is yet to reach the halfway mark of its FY21 divestment goal. However, a 27-158% rally in shares of some state-run companies since March, in line with a more than 50% rebound in benchmark indices, could boost the government’s plans.

A Mint analysis of data sourced from Prime Database showed that the government may fetch 15,155 crore (based on closing price of 1 October) by paring its stake in 21 listed public-sector-undertaking (PSU) firms to meet the 25% public shareholding norm as mandated by the Securities and Exchange Board of India (Sebi). The data showed that public shareholding in these 21 PSUs ranged from 0.94% to 23.95%. For review, PSUs where public shareholding is less than 25% have been considered.

For instance, the government can rake in 1,795 crore by increasing the public shareholding in KIOCL Ltd to 25% from the current 24.06%. Similarly, it can earn 2,737 crore by raising the public shareholding by 12.4% in one of its best performing stocks, the Indian Railway Catering and Tourism Corporation (IRCTC). Centre currently holds 87.40% in IRCTC, which has rallied 78% since March.

Graphic: Mint
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Graphic: Mint


Madan Sabnavis, chief economist, CARE Ratings, said meeting the Sebi norms for minimum public shareholding through stake sales should be a low-hanging fruit for the government and it should endeavour to expedite the process. However, going by previous disinvestments, all such decisions take time which often leads to bunching of disinvestment where the buyer is another PSU, he said.

So far, this year, the government has raised 5,695.63 crore through offers for sale in defence manufacturers Hindustan Aeronautics Ltd and Bharat Dynamics Ltd. Last week, the government’s first initial public offering (IPO) of FY21, Mazagon Dock Shipbuilders Ltd was subscribed over 157 times. It sold 15.17% stake to raise 444 crore in the IPO.

The divestment target for this fiscal includes an IPO of Life Insurance Corporation of India (LIC) and a stake sale in IDBI Bank. The government has also been planning to sell stakes in Air India, Bharat Petroleum Corporation Ltd (BPCL), Container Corporation of India Ltd (Concor) and Shipping Corporation of India Ltd (SCI) soon. However, none have been completed so far.

“In areas where the government has indicated that it will do a part stake sale (like LIC IPO), there could be a good response, given the kind of responses we are witnessing for recent primary issuances. However, pre-IPO process in case of LIC will be lengthy given the need to value the huge land assets owned by LIC. As such, concluding LIC IPO this financial year looks challenging," said Garima Kapoor, economist-institutional equities at Elara Capital.

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