Unlisted PSUs in line for divestment

Centre asks Sebi, MCA for a suitable price discovery mechanism

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The Union government, with an ambitious disinvestment target for 2014-15, is considering offloading its holding in some unlisted public sector undertakings (PSUs), without an Initial Public Offering (IPO) or listing these.

Sources say the finance ministry has asked the ministry of corporate affairs (MCA) and the Securities and Exchange Board of India (Sebi) for reactions. The department of disinvestment website has listed 169 unlisted Central Public Sector Enterprise (CPSEs).

The proposal is in the early stages and the Centre has not made a list of companies where it can a sell minority stake to institutional investors, said sources.

For the current financial year, the government plans to raise Rs 58,000 crore through divestment to help bridge the fiscal deficit. Of this, Rs 43,000 crore will be raised by selling shares in CPSEs.

The Centre is said to have asked Sebi to suggest a mechanism for price discovery of unlisted companies. MCA is to collate the financial data on unlisted PSUs. “One of the priorities of the government is to set up a mechanism for price discovery for unlisted companies to unlock government’s stake in PSU entities,” said a senior finance ministry official.

Such a mechanism would help determine spot prices of companies. In an IPO, the price discovery is done through the book building process, where investors make bids at various prices in a set band. The price at which the largest number of bids are received is fixed as the allotment one.

For unlisted PSUs, the price discovery mechanism could be based on financial performance,  industry valuations and market feedback.

Some experts believe Sebi will modify the institutional trading platform (ITP) to help the government pare its stake in unlisted PSUs without having to do an IPO. The ITP programme, introduced last year, allows a company to list without an IPO. So far a little over two dozen private companies have listed on this platform, provided by the BSE and the National Stock Exchange. The system is aimed at providing an exit to private equity entities such as angel and venture capital investors.

The disclosure and other regulatory requirements under ITP are lot more relaxed compared to listing through an IPO. The pricing takes place on an order matching system.

“Ideal price discovery takes place when there is perfect competition. The endeavour should be to create an environment as close as possible to this in a market for any product, including securities, listed and unlisted,” said M S Sahoo, secretary, Institute of Company Secretaries of India.

According to investment bankers, among unlisted PSUs from which the government can unlock substantial value is Nuclear Power Corporation of India, with a net worth of Rs 27,000 crore in FY13. And, telecom services provider Bharat Sanchar Nigam, with net worth of nearly Rs 60,000 crore. The Centre might also consider selling stake in Hindustan Aeronautics and Rashtriya Ispat Nigam, ahead of their IPOs.