|ONGC and other flops|
|Friday, 02 March 2012 00:00|
No one wants PSU shares without privatization
While a desperate finance minister hopes to get a substantial part of his disinvestment target of R40,000 crore through cash-rich PSUs like ONGC and NTPC either buying back part of their shares or buying the government’s shareholdings in other PSUs, the ONGC flop show should make it clear just what stock markets and investors think of the exercise—till the time of writing this piece, about 68% of shares had been subscribed to and there is no clarity as to how much was bought by government-owned financial institutions like SBI and LIC. The main reason is that, unlike in the NDA years where disinvestment resulted in several high-profile PSUs changing hands and turning around handsomely—witness how Maruti is now an integral part of Suzuki’s global R&D and production plans—disinvestment is once again back to being a gap-filling exercise, with no hope of the PSUs turning around. We need, the argument sort of goes, another R35,000 crore to spend on MGNREGA, so let’s sell 8% of BPCL, 11% of ONGC … no wait, remove BPCL from that list since the government shareholding there is just 55%, let’s sell HPCL shares instead!
Indeed, lack of clarity about the freedom that PSUs will enjoy and the impact of government policy is the prime reason why the investor response to ONGC has been muted. Once the UP elections are over, it is widely believed, diesel prices will be raised by R4 per litre—this, as we pointed out yesterday, would result in the R1.4 lakh crore under-recovery burden falling by around R23,000 crore and, therefore, ONGC’s under-recovery burden falling by around R9,000-10,000 crore. After taking into account the additional tax on this, and ONGC’s PE ratio, its market cap would have risen R65,000 crore. So why, despite this, have investors been wary? For one, investors don’t know if diesel prices will be raised; if so, by how much; when will prices be raised again; will a cash-rich ONGC be asked to now invest in Coal India and, if so, how much … All that Thursday’s Cabinet decision on share buybacks will end up doing is to get PSUs to help contribute to the finance minister’s coffers while leaving overall government control—either directly or through its holding in other PSUs—largely undiluted. You can’t get a better example of trying to comply with something, in this case adherence to the fiscal deficit target, in letter not spirit. But with spending out of control and taxes falling short, presumably anything goes.