Standard Post with Image

Win-Win Deal in Works for PSU Disinvestment

  • Strategy is to encash shares, yet keep them.The finance ministry is working on a new disinvestment strategy which seeks to set up a special purpose vehicle (SPV) to which all government stake in three blue chip private companies – L&T, ITC and Axis Bank — will be vested.The shares are now held through SU-UTI and will move to the SPV.The new plan, expected to go before the Union cabinet this week or the next, is designed to help the government cut its deficit. The SPV’s holdings in the three private companies will be pledged with banks to raise money. This money, in turn, will be used to buy the government’s stake in public sector undertakings.Subsequently, the SPV will be free to sell those PSU shares in the open market as and when it deems it fit.

  • Thus, the government will not be required to sell its PSU shares directly on the currently desultory market (as a direct disinvestment now will entail), but still be able to mop up revenues to bridge the deficit, a finance ministry official told Financial Chronicle.Through SU-UTI, the government holds 8.3 per cent in L&T, 11.54 per cent in ITC and 23.6 per cent Axis Bank. Together the holdings are worth Rs 32,000 crore at current prices.The official said some public sector banks now have plenty of liquid funds, but no takers because of poor credit offtake. By lending to the SPV, the banks’ money can be better deployed for profit. He did not see procedural hurdles in implementing the plan.

  • By pledging the shares with the banks, the SPV can potentially raise loans worth at least Rs 70,000 crore. This is the money that it will use to buy the government’s shares in PSUs. In this process, the government will make about Rs 40,000 crore – the current year’s disinvestment target. The government has not ruled out buyback of its holdings by cash-rich PSUs. A few such proposals may be considered along with the new disinvestment plan at the cabinet meeting.Some PSUs — like ONGC, SAIL, NBCC and Bhel — have geared themselves to selling the government’s shares through public issues, but have not yet gone to the market. Once the SPV begins operations in the market, these PSUs can also independently float share issues. Since the current financial year closes in two months and a half from now, the new strategy is expected to be in place sooner rather than later.

Source