Given how the new offer-for-sale (OFS) route for disinvestment has worked so well—almost all of R23,778 crore of PSU stake sales in FY13 was through this new route offered by Sebi—it comes as a surprise to see the Standing Committee on Finance coming down against OFS and, instead, recommending the government try to find ways to encourage retail investors. The fact of the matter is that OFS allows the government to time the market like no other instrument does. Any retail offering using traditional routes requires lengthy issuing of offer documents and prospectuses—this takes away a lot of time and is irrelevant since, in the case of a listed company, there is little new information to give to prospective shareholders that is not already in the public domain. Moreover, given the sharp volatility in the market, the need of the hour is to shorten as much as possible the time to market—since Sebi rules allow just a one-day notice for OFS, the government can quickly take a decision to divest if it finds high FII flows. For instance, as compared to $14.1 billion of FII funds in January and $4.6 billion in February, FII flows fell to a fourth in March. Indeed, given the long notices given for OFS since the process is cleared by E-GoMs and the Cabinet, during which time market operators beat down the price of the stocks, you’d have thought the Standing Committee would have plumped for a less public process of disinvestment.
While the Standing Committee has a point when it says public sector banks need to be pushed into controlling NPAs and recovering bad loans, the criticism that disinvestment proceeds should not be used to recapitalise banks seems out of place. Indeed, given how the Standing Committee is headed by the the former BJP finance minister Yashwant Sinha, one would have hoped the report would have made out a case for strategic sales in place of small stake sales that do little to help improve the PSUs’ performance.