Sell-off turnaround dashes PSU hopes

PFC's attempt at raising money through IPO in limbo.
 
NEW DELHI: Prime Minister Manmohan Singh’s decision to put on hold the disinvestment “decisions and proposals” has dashed the hopes of public sector companies wanting to get listed or planning follow-on issues.

The fate of Power Finance Corporation, which had filed its draft red herring prospectus with the Securities and Exchange Board of India on June 7, 2006, is among those which lie in limbo.

The move would mean that the government would not be able to meet its budgetary target of raising Rs 3,840 crore through disinvestment in PFC and National Minerals Development Corporation (NMDC) for the current financial year.

About Rs 2,356 crore that was to be raised from the residual 10.24% equity stake sale in Maruti Udyog and Balco during 2005-06 also appear doubtful. With Section 111 A of the Companies Act as a fig leaf, the government has refused to sell the residual 49% Balco equity to the Sterlite group, which had bought a strategic stake in the company in 2002. The section prohibits pressurising a shareholder to sell equity in a company.

The disinvestment in Shipping Corporation of India and NMDC, also approved by the Cabinet earlier this year, too, are stalled.

“Taking into account their (UPA partners) concerns, the Prime Minister has decided to keep all disinvestment decisions and proposals on hold, pending further review,” said a statement from the prime minister’s office. 

The Union Cabinet had, less than a fortnight ago, decided to reduce its holding in National Aluminium Company (Nalco) and Neyveli Lignite Corporation (NLC) to 77.16% and 83.56%, respectively, by off-loading 10% equity in the market.

Finance minister P Chidambaram had, at the time of the cabinet decision, indicated that the decision was reached after a consensus with the Left parties over a nine-month period. The disinvestment in the two companies would have fetched the government an estimated Rs 2,500 crore.

“The decision to put disinvestments on hold will not have any impact on the companies,” said a senior government official, adding that it was just a change of ownership of shares.

A senior Nalco executive said it was up to the government to sell or hold on to the shares. “How it uses the funds also depends on the owners. The company has nothing to do with it,” he added.

While Nalco and NLC might not have anything to lose since funds raised through disinvestment would not have gone to the company, PFC’s attempt at raising money through the IPO would suffer. With news of disinvestments on hold, PFC executives were seeking clarity on their IPO from the department of disinvestments.

“Two-third of the money raised through the IPO would have come to us,” said a senior PFC executive. The power sector financier would now have to raise debt to that extent. PFC was planning to raise 10% fresh equity through IPO, along with the sale of 5% government holding.

May affect FII inflows

The calling off of the divestment process and public offerings of Power Finance Corporation, National Mineral Development Corporation, Neyveli Lignite and National Aluminium Company may not have a direct near-term impact on the equity markets, but may be a cause for concern as far as liquidity from abroad is concerned.

“Viewed in isolation, postponing of divestment does not have an impact. Divestment through the IPO route was not considered positive as far as the markets were concerned. But it may impact flows from foreign institutional investors who may see this as indirectly affecting fiscal deficit,” said Deepak Jasani, head of retail research at HDFC Securities.

He adds that if the tide turns negative, the government’s reluctance to carry forward its thrust on reforms could also get highlighted.

“The market recovery on Thursday after the announcement was because it eased concerns about the DMK withdrawing support to the government,” said V K Sharma, director and head of research, Anagram Securities. The Sensex, after touching an intra-day low of 10,703 points, gained about 65 points to close at 10,767 points. This was 151.67 points (1.39%) down from its previous close.

Sharma adds that in the medium-term, the announcement is an absolute negative as it reduces the credibility of the government. -- Sanat Vallikappen