'I do not see any reason why we cannot achieve the Rs 40,000-cr target'

Q&A: Sumit Bose, Disinvestment Secretary

Next to tax resources, disinvestment is slated the biggest source of revenue for the government in 2010-11. With the last two public issues of its companies not doing well, analysts say the government should not value its companies so highly. In an interview with Vrishti Beniwal & Jyoti Mukul, disinvestment secretary Sumit Bose says the effort in pricing is to be fair and reasonable. Edited excerpts:

The target for disinvestment has been fixed at Rs 40,000 crore for 2010-11. Is it very ambitious?
I think you should not look at the target alone but at the disinvestment policy as a whole. What is sought to be achieved, the finance minister mentioned in his budget speech. First, broad-basing ownership; that means dispersed ownership of PSUs public sector undertakings). Then, better corporate governance through listing—independent directors, better scrutiny, etc. Third, unlocking of value for all stakeholders—government, investors, company, along with employees. Overall, the performance of PSU improves.

These are the highlights of disinvestment, being done under the policy which says companies that are listed and do not meet the (regulator’s) mandatory requirement of 10 per cent float will be made compliant. Second, companies that are not listed and are profitable will be listed. Then, companies that are listed and who need to raise money will go to market.

What went into the Rs 40,000-crore calculations? Was some number of companies kept in mind?
There is some calculation, but these are early days. The department of disinvestment works with the administrative ministry and, very importantly, with the government. It is a process and it isn’t that today you decide and tomorrow you come out with the issue. It is a dynamic process. Each budget number is calculated back and forth.

About 40-50 companies were initially said to fit into the policy radar. How many of these are prepared to go to the market?
We are working on it. We have to come out with a plan, if not for the full year, for part of the year. At the moment, Satluj Jal Vidyut Nigam Ltd and Engineers India Ltd are there. Then, there is SAIL, which has been talked about but it is yet to get government approval. There are other companies and there may be some company-specific issues with some of them.

The Finance Commission recommended that proceeds from disinvestment should also be used for infrastructure and environment schemes of the government. What is the view of the finance ministry?
Some parts of the Commission report are under process. The current disinvestment policy says it should be spent on capital expenditure in the social sector and that includes infrastructure. JNNURM (Jawaharlal Nehru National Urban Renewal Mission), AIBP (Accelerated Irrigation Benefit Programme), RGGVY (Rajiv Gandhi Grameen Vidyutikaran Yojana), IAY (Indira Aawas Yojana), and MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) are all social sector infrastructure. How environment will be incorporated, if at all, is a call the finance ministry will take.

Are you considering any change in strategy after the lukewarm response to the recent issues of NTPC and REC?
They were all follow-on public offers (FPOs). There has not been a single initial public offer (IPO). (The) French auction (method) has only been tried out for NTPC and REC. I think it is too early to condemn this system. In case of REC, we tweaked the policy and allowed downward revision. It got a better response. In just one issue, it is very difficult to say that it happened because of this policy or this tweaking. Sebi (the market regulator) offered French auction for FPOs and we have to consider it over a longer period of time, before saying it does work or does not work.

Will the government use French auction for all FPOs?
We are not using it for NMDC. We are going through a book-building process, with a price band. NMDC is more like an IPO, because of a very low float in the market. Hence, we decided we might as well leave that issue to book-building, with a discount of five per cent for retailers.

Market analysts say PSU issues are not getting the desired response because they are valued very high. Do you agree?
Pricing of an issue is decided by a high-powered committee which makes a recommendation to the Empowered Group of Ministers, which then takes a decision. The valuations have to be right. NTPC got fully subscribed. The response to REC was better than NTPC. You must make a distinction between an IPO and FPO. In FPO, investors have the option of buying shares from the market. You go to a broker and buy shares, which are delivered immediately. Many of them will not want to buy from the issue.

Some of the government companies, like NTPC and NMDC, have good balance-sheets. Do you think they are overvalued or undervalued?
In pricing, the entire effort is to be fair and reasonable for everyone and that is what we aim at.

Would you consider strategic sale or private placement for some issues?
The policy parameters are very clear. As of now, we do not have any plan to allow strategic stake sale.

Private placement has been suggested for BSNL. Will the government try this?
We are yet to hear anything from BSNL. At the moment, private placement is not on the cards.

Do you think market conditions are favourable for public issues and you will be able to raise Rs 40,000 crore?
We are proceeding to meet that budgetary target. Overall, the economy is doing much better. I do not see any reason why we cannot achieve the target. If, some time, something happens to the market, that is a different thing.

Will you have more vigorous publicity to promote the issues? Private promoters usually hardsell their offers.
There have been publicity campaigns. PSUs themselves are doing this. If it needs to be strengthened, we will certainly do it.

Would you divest stake in most PSUs in the next two years, when the proceeds can be used to bridge the fiscal deficit?
There are 199 unlisted companies and it is not possible to divest stake in all of them. There is a lot of emphasis on disinvestment (till 2012), but how many of those will be actually listed in this period, I cannot say at the moment. We will take a month or so to know.

Would you focus on any particular sector? For instance, the past few issues were in the power sector.
We are not looking at any particular sector. There is no such idea. Even in the private sector, there were a lot of issues from power companies. Companies like NMDC are sectors to themselves.