Modi govt likely to sell at least 5% stake in Coal India this fiscal

The sale will fetch the exchequer around Rs 88 billion

Faced with the lack of any-big ticket disinvestment, the Narendra Modi government is considering selling at least 5 per cent stake in Coal India this fiscal year, Business Standard has learnt. 

At current market capitalisation levels, a 5 per cent stake sale will fetch the exchequer around Rs 88 billion.

The stake sale may happen in the second half of this fiscal year. The total disinvestment target for 2018-19 stands at Rs 800 billion, of which only Rs 92 billion has been achieved.

The stake sold in Coal India is likely to come from a Special National Investment Fund (SNIF). The SNIF is a special purpose fund in which the Centre will transfer the requisite shares of all state-owned companies in which it holds a stake of above 75 per cent, to bring its shareholding below that mark. This is to comply with the Securities and Exchange Board of India’s (Sebi) minimum public shareholding norms.

Under this route, the government parks the PSU stakes it will eventually require to divest in an SNIF. That stake is considered divested by Sebi. The SNIF could sell the PSU stakes parked in it at a later date. The deadline for the government to bring its shareholding in PSUs to 75 per cent or below is August 22.

The Centre currently holds 78.3 per cent stake in Coal India. When it transfers a 5 per cent stake to the SNIF, its share will reduce to 73.3 per cent. “It is this stake that will be divested through the exchanges later this year,” said a government official.

“Given that there are no big disinvestment items this year, we have to take such steps to reach the Rs 800 billion target. Last fiscal, the government knew that the ONGC-Hindustan Petroleum deal would happen and constitute a bulk of the disinvestment proceeds. This year, Air India could have been that big transaction. But it is now scrapped,” the official said.

In 2017-18, ONGC’s acquisition of HPCL added Rs 369 billion to the exchequer, out of a total revised disinvestment proceeds of Rs 1 trillion.

Some other companies whose shares will be transferred to the SNIF by August 22, to bring the Centre’s holding down to 75 per cent and then divested at a later date, include Nevyeli Lignite, State Trading Corp, SJVN, Madras Fertilizers and Kudremukh Iron Ore Company. It is not clear if their divestments will take place this year itself.

Besides Air India, another big privatisation plan has been scrapped this year — that of merging the three insurance companies — National Insurance, Oriental Insurance and United India Insurance, and then taking the merged entity public through an initial public offering (IPO). The Centre would have earned money on the merger as well as the IPO.

As for other divestment plans for the year, the department of investment and public asset management (DIPAM) has chosen five out of 30 odd companies and assets that were earmarked for privatisation. 

These are HSCC, Engineering Projects India Ltd, Pawan Hans, Scooters India Ltd and Central Electronics Ltd. HSCC and EPIL are ear-marked for sale to larger ‘similarly-placed’ PSUs. Pawan Hans, Scooters India and CEL will be sold to private players.

DIPAM successfully issued a second tranche of its flagship Bharat 22 Exchange Traded Fund (ETF) earlier this fiscal and will issue a fourth tranche of its Central Public Sector Enterprises ETF later this year. It has a slew of stake sales through offer-for-sale including GIC Re, New India Assurance, Hudco, NTPC and NBCC. There are also IPOs of a number of defence and rail companies in the pipeline.