A Rs 40,000-crore (Rs 400-billion) shortfall in the Budget for 2011-12 is looming large and the market doesn't appear stable enough to absorb even a fraction of it.
However, the government seems to have spotted a flicker of light. Officials have been 'thinking aloud' about alternative options like buybacks, strategic sales and qualified institutional placements to bridge the gap.
But the government's Plan 'A' -- disinvestment through public offers or people's ownership of public sector units -- is still on track.
In fact, the process has gained steam in the last few days.
On October 19, the Department of Disinvestment issued advertisements inviting bids from merchant bankers to manage Hindustan Aeronautics Ltd's initial public offering.
The following day, it went through presentations for appointing legal advisors for Rashtriya Ispat Nigam Ltd's IPO.
On October 22, the department put up the official notification of the final approval by the Cabinet Committee on Economic Affairs to the five per cent follow-on offer of Bharat Heavy Electricals Ltd and the Cabinet nod to National Building Construction Corp's IPO.
While media reports, quoting unnamed sources, had talked about these as early as August, these take effect only after issuance of notifications.
The CCEA note on disinvestment goes through the ministries concerned , the Prime Minister's Office and the Cabinet Secretariat before getting notified.
The notifications are critical as they need to accompany the regulatory filings.
"The book running lead managers and legal advisors can commence the process of preparing the Draft Red Herring Prospectus immediately after appointment.
However, CCEA's approval for disinvestment through public offers has to be taken either before the DRHP is filed with the Securities and Exchange Board of India by the Central Public Sector Enterprises or, in fast track issues, the Red Herring Prospectus is filed with Sebi and the Registrar of Companies," says a finance ministry handbook on divestment process.
Bankers
"We are giving finishing touches to the draft prospectus. Once the accounts are updated and cleared by lawyers, we will submit them to Sebi," said a merchant banker involved in the process.
IDBI Capital and Enam Securities are the merchant bankers for this issue. BHEL's FPO, likely to raise over Rs 4,000 crore (Rs 40 billion) at current valuations, was waiting for Sebi approval, said a banker involved in the issue.
At the same time last year, the government was sitting pretty, having completed the Rs 15,000-crore (Rs 150-billion) share sale of Coal India Ltd.
Even after that, at Rs 22,762 crore (Rs 227.62 billion), divestment proceeds fell well short of the target.
Then, the shortfall did not hurt as it was more than made up by proceeds from the 3G auction.
However, there is no such cushion this year, making the divestment proceeds important.
In September, economic affairs secretary R Gopalan had said the government was confident of achieving the Rs 40,000-crore target.
But, thanks to volatile market conditions, the government has not been able to push through large issues such as the follow-on offers of Oil and Natural Gas Corporation and Steel Authority of India Ltd.
Power Finance Corporation is the only entity to have been divested this year, raising Rs 1,145 crore (Rs 11.45 billion).
However, according to marketmen, even a short window of stable markets may help change the picture.
"After Diwali, we might see a couple of issues, as the problems in Europe appear to be coming to a close.
"While the government may not be able to achieve its target of Rs 40,000 crore this year, they will be pushing a few issues," said the banker managing BHEL's FPO.
Earlier this month, when asked if the government was contemplating lowering the disinvestment target for this financial year, disinvestment secretary Mohammed Haleem Khan said, "The figure has emerged out of the budgetary exercise.
"There will be revised budgetary exercise in November. We will take a call then."
