With less than five-and-a-half months to go and a whopping Rs38,835 crore left to be mobilised, the government is looking at auctioning its stake in state-run firms to be able to meet the Rs40,000 crore divestment target, media reports on Wednesday suggested.
But, if experts are to be believed, the appetite for these stakes is likely to be dim outside of the public sector institutions universe.
Understandably, the auction process would involve the government inviting bids for its stake in various state-owned enterprises and the entity quoting the highest amount walking away with the stake in the respective institution.
But, given the current market situation, experts feel private players will not participate in the auction.
“Who will bid in a depressed market? Participation is likely to be restricted to public sector institutions and treasuries,” said an investment banker with a domestic organisation which has handled government issues.
Worse, the idea that an auction would help gain better valuations may be belied as the only ones participating may be looking for a bargain.
“Institutional participation, especially among foreign investors, would depend on risk appetite. For those who do wish to buy, the price would be a key criterion,” said the chief investment officer of one of the largest domestic institutional players.
The government will soon move to sell its stake in Steel Authority of India Ltd (SAIL) and the Oil and Natural Gas Corporation.
In the case of SAIL, the company will not issue fresh shares; the government will sell a 5% stake, the divestment secretary told reporters in New Delhi. The government will be trying to complete Oil and Natural Gas Corporation’s divestment by the end of the calendar year, he said.
Brokers and merchant bankers have been instructed by ONGC to retain the prospectus and other application forms, a source told DNA.
SAIL would fetch the government 2,200 crore, while ONGC would garner `11,500 crore at Wednesday’s market price.
The government is also mulling the possibility of a buyback, CNBC TV-18 reported, adding that both the routes will require Cabinet approval.
Meanwhile, listed public sector undertakings have taken a beating in recent times. The PSU index has underperformed the benchmark index over the last one year, falling 27% compared with a 14.50% fall in the Sensex. Similarly, over the last one month, the PSU index has given negative returns of 2.7% even as the broader markets have rallied 2%.