At a time when the stock market has managed to hold around at all-time levels, the government has begun the process of forming an Exchange Traded Fund (ETF) comprising of stocks held by the Specified Undertaking of the Unit Trust of India (Suuti) such as ITC, Axis Bank and L&T by floating a Request For Proposals from asset management companies on Wednesday.
SUUTI India holds sizeable amount of stakes in several blue chips like ITC (11.27%), L&T (8.18%) and Axis Bank (11.66%), big enough to impact market prices of these scrips or even overall market sentiment.
"Suuti and Government of India propose to create and launch an ETF comprising of stocks held by Suuti and select listed CPSEs. The proposed ETF will serve as an additional mechanism for the government to monetise its shareholdings in SUUTI and other selected CPSEs that eventually form part of the ETF basket. The ETF could be launched as a New Fund Offer followed by further tranches or a tap structure, and SUUTI and government may provide appropriate discount for different investors, in the form of a suitable mix of upfront and back-end loyalty discount," the RFP document issued by Suuti said.
The proposed ETF will be launched as a close ended structure, the time period of lock-in and other specifics would be decided by Suuti and the government in consultation with selected AMC and the advisor, the document said.
The floating of the RFP puts an end to the speculation about the fate of the Suuti, as the government has at last finalised the formation of the ETF for the holdings of the undertaking.
Finance secretary Arvind Mayaram had said that floating an ETF for selling stakes in Suuti's holdings is just one of the options being explored by the finance ministry.
Apart from the Suuti stocks, the ETF will have a provision to include shares of about seven public sector undertakings.
In March, the government raised close to Rs 4,400 crore through an ETF comprising of 10 state-run companies including ONGC, Indian Oil and Coal India.
That ETF has performed well by listing at around Rs 18 and reaching up to Rs 27.95 before now being quoted at around Rs 24.
Suuti was holding 20.72% in Axis Bank, but in March it offloaded 9% of its stake helping the government raise Rs 5,500 crore at price of around Rs 1,320 a piece in bids mostly put in by foreign institutional investors and LIC.
In his budget in July, Finance Minister Arun Jaitley had set a target of Rs 58,000 crore to be raised through the sale of shares in state-run companies and minority stakes in private companies.
The Cabinet Committee on Economic Affairs or CCEA in January decided to revive SUUTI reversing its earlier decision to wind up the undertaking.
ICICI Securities, which had acted as an advisor to the earlier ETF has been retained for the SUUTI ETF as well.
"The government shall formulate the ETF basket, after taking into account the opinion of the AMC and the advisor, and shall endeavour to structure a marketable ETF. The AMC would provide inputs on the various options suggested for structuring the SUUTI held stocks and CPSE basket including composition of stocks, weightages and methodology followed, providing inputs on the close ended nature of the fund vis-a-vis lock-in, options to provide limited liquidity," the brief for the AMC in the document said.
The government also plans to undertake market surveys and road shows to generate interest amongst prospective investors and arrange meetings with key investors for the success of the ETF.
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