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Government gets bullish on divestment

April 27, 2017 14:15 IST

Lines up seven OFS issues along with half a dozen IPOs for the next few months

The government seems to be taking a proactive approach towards divestment this financial year. While the Centre has already wrapped up the offer-for-sale (OFS) of National Aluminium Company (Nalco) last week, in the next few months it is lining up stake sales in seven public sector undertakings (PSUs).

These include Indian Oil Corporation (IOC), NTPC, Steel Authority of India (SAIL), NTPC, NHPC, Rural Electrification Corporation (REC) and Neyveli Lignite Corporation (NLC).

The move is seen as an attempt to plan out the divestment issues evenly during a year and avoid clogging of issues in the last few months.

The government has set itself an ambitious divestment target for the current financial year. According to the Union Budget, the Centre plans to raise Rs 72,500 crore through divestment during FY18.

Of the total amount, the government expects to garner Rs 46,500 crore though minority stake sales. It plans to garner Rs 11,000 crore (TRs 110 billion) from strategic stake sales, which involves selling of the stake the government owns through Specified Undertaking of the Unit Trust of India (Suuti). It expects another Rs 11,000 crore through listing of state-owned insurance companies.

“In the past few years, it has been seen that there are hardly any divestments during the initial period of the year. Most issues typically get bunched up at the end of the year. This year the government has become more proactive,” said a source.

The government also released a comprehensive time frame for listing of PSUs recently, which is seen as another proactive measure taken by the government for ensuring timely divestment.

According to the time frame, the government wants PSUs to list within 165 days from the day when its board clears the IPO proposal.

With the buoyancy in PSU stocks, the government is also likely to opt for stake sale through the OFS route this financial year. This is in contrast with the divestment strategy of the government during the last financial year, where it relied heavily on buybacks and block deals to raise money. During FY17, the government mopped up Rs 46,246 crore (Rs 462.46 billion) through divestment, of which only Rs 2,960 crore (Rs 29.6 billion) was on account of OFS.

The positive performance of PSU stocks is expected to give a boost for the forthcoming issuances, market participants said.

The BSE PSU index, a gauge of top PSU stocks, rallied nearly 40 per cent in FY17, outperforming the 16 per cent growth posted by the Sensex. This is the first time in seven years that the PSU index fared better than the benchmark.

“The overall mood in the markets is positive with the benchmark indices trading near their all-time highs and the PSU stocks have also done well in the recent past. Hence, the situation looks favourable for the government to go for OFS,” said Mukund Ranganathan, executive director, Motilal Oswal Investment Banking.

Apart from the seven OFS, the government is expected to list close to eight companies soon, including Cochin Shipyard, Hudco, GIC and IRCON. Market participants also expect action on the Suuti front. In FY17, the government had divested some of its stake owned through Suuti in ITC and L&T.

Pavan Burugula in Mumbai