Government to leverage public offers, buybacks for divestment plan

(This story originally appeared in on Oct 12, 2020)

NEW DELHI: Encouraged by the response to the Mazagon Dock Shipbuilders IPO, the government will prioritise public offers at an ‘attractive price‘ and buybacks as it seeks to mop up resources from disinvestment during the second half of the fiscal.

While suspending the use of exchange-traded funds (ETFs) for disinvestment, sources said the government will also reduce the reliance on public sector banks and financial institutions such as Life Insurance Corporation (LIC) as an attractive price will not just generate investor appetite but also leave room for an upside at the time of listing. “Post-listing gains also show that we care for investors. In the past, there have been instances where public sector stocks have lost value after listing. We are engaging with investors and bankers on this issue,” said a senior government official.

RailTel IPO, along with followon issues of IRCTC, Kudremukh Iron Ore Company and TCIL, are among those in the pipeline that will be pursued by the department of investment and public asset management (Dipam). Sources said that the growing view in the government was that ETFs have a serious impact on stock prices and have resulted in value erosion in case of future IPOs and follow-on issues.

The strategy to get LIC and other large institutions to stay away from bailing out PSU issues is part of a plan for better governance of these entities ahead of their own listing and public offers. “A market-based system also lifts other stocks,” the source said.

While the Rs 2.1-lakh-crore disinvestment target for the year appears elusive, given the significant impact of the coronavirus, Dipam has identified 6-8 PSUs, including Rites, which are sitting on cash for a possible buyback of shares. “We are trying to strike a balance with capex because we do not want them to surrender money that can be used for asset creation in these times,” explained an official.

The finance ministry has been pushing public sector companies to step up capital expenditure at a time when overall investment climate is hit by Covid-19 and a fall in demand. Infrastructure and energy sectors have come into special focus as their expansion and new asset-creation will generate demand for steel, cement and other inputs, apart from creating jobs.

At the same time, officials said that strategic sale remains at the core of the strategy with some of the asset-monetisation plans, especially those related to the sale of steel plants owned by SAIL expected to go through. Although bids for the BPCL disinvestment have been deferred, sources said all strategic sale decisions may not be put off.

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