Disinvestments failed to thrill

The markets sold as the finance minister announced the previous Budget, with the Sensex falling 869.65 points on the day. This reaction may be part of the reason last year’s Budget has gone slow on some of the proposals.The prime item on the agenda the last time was the disinvestment issue. The sale of government stake in public sector undertakings was seen as a great way of filling government coffers and allowing the average investor to gain from companies that often enjoyed a significant advantage in sectors that have only recently been opened to private players.“The public sector undertakings are the wealth of the nation, and part of this wealth should rest in the hands of the people. While retaining at least 51% government equity in our enterprises, I propose to encourage people’s participation in our disinvestment programme,” the finance minister had said in his speech.The government started off with the initial public offering of NHPC in August. However, hype over the issue egged on an aggressive pricing strategy that left little room for major gains. As of February 9, the stock was trading at Rs 33.00, a discount of 8.33% from its issue price.The government also divested 10% share in NTPC through a follow-on public offer. The offer was barely subscribed, with investors bidding for 1.2 times the shares available, a far cry from the double-digit oversubscription that many initial public offers enjoyed.The government raised Rs 14,000 crore through the two issues.The Oil India divestment, in which the government raised slightly under Rs 3,000 crore, has been an exception. The stock closed Tuesday at Rs 1190, up 13.33% over the issue price.Over the remainder of the quarter, the government is also looking to divest 10% in National Mining Development Corporation (NMDC), Rural Electrification Corporation (REC) and Satluj Jal Viyut Nigam.By March 2010, there would be 61 unlisted PSUs up for divestment. The government also planned to increase the public float in listed companies, noting that the average public float in listed companies is less than 15%. “Deep non-manipulable markets require larger and diversified public shareholdings. This requirement should be uniformly applied to the private sector as well as listed public sector companies,” it was said.The implementation of this has been stalled by the sheer volume of capital raising this would involve, say experts. This would have dragged the broader market down.Last heard, the finance ministry was still drafting the rules for a phased increase in public shareholding for companies with a promoter stake in excess of 75% through a 5% stake sale every year. Also the minimum amount that would have to be sold in an initial public offer could be raised from the current 10% to 25%.