Disinvestment lessons PDF Print E-mail
Saturday, 23 March 2013 03:16
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Don’t bunch them, don’t give much advance notice


With a 5.82% stake sale in public sector steel giant SAIL for R1,517 crore, the government’s total collections from disinvestment in the current year now total R23,778 crore, an all-time high since the process first began in FY92 with proceeds of a little over R3,000 crore. The last high, in FY10, was R23,553 crore. The success of the disinvestment, of course, has been somewhat reduced by the large purchases of government-owned institutions like LIC and SBI. In the case of SAIL, market reports suggest 40% of the issue was subscribed to by LIC and another 10% by SBI. In the case of ONGC, in FY12, nearly 88% of shares were subscribed to by LIC. In the case of NTPC, whose share sale fetched the government R11,469 crore, a little over 15% was subscribed to by LIC alone. All told, in the current year, between a fourth and a fifth of the year’s disinvestment proceeds were contributed by LIC alone—indeed, a big bone of contention during the year between the insurance regulator and the government was LIC’s high shareholdings in various PSUs. The flip side of this, however, has been the relatively high share of investments made by FIIs in select PSU stocks. While FIIs purchased around a fifth of SAIL stock on Friday, they bought over 60% of Oil India Limited’s offer for sale (OFS) and just under 45% in the case of NTPC.

Given that all disinvestment during FY13 took place through the OFS route, the process has clearly worked well for the government in terms of the time saved and the ease of sales—lengthy offer documents and prospectuses make little sense in a listed company about which there is little that is not in the public domain anyway. The problem, though, is that nearly three-fourths of the year’s OFS’s got bunched in the two months of February and March, probably robbing the government of an opportunity of getting more funds—as compared to $4.1 billion of FII funds in equity in January and $4.6 billion in February, FII flows fell to a mere $1.4 billion till March 22. So, in a year when India got $25.5 billion (till March 21) of FII funds, the government didn’t take full advantage of it. Also, 2012 was the year in which India was one of the world’s best performing markets.

The government needs to rethink the process of OFSs for FY14 keeping this in mind—bunching issues towards the end of the year is not a great idea, more so since FIIs are likely to be more skittish as the elections near. Improvement in US markets will lower liquidity and that too will affect FII inflows. Long advance notices of OFSs thanks to the process of EGoMs and others clearing the issue also means, in most cases, market prices get beaten down. In the case of SAIL, for instance, stock prices have fallen 32% since January while the broader market fell just 4%—a result of markets knowing when the issue is going to hit the markets and the levels of desperation of the government to sell. Since Sebi requires only a day’s notice for OFSs, keeping dates of stake sale secret is a good idea.


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