CCEA may consider govt's stake cut in some PSUs to below 51% next week

The Cabinet Committee on Economic Affairs (CCEA) is next week expected to take up a proposal to reduce the government’s stake in a number of state-owned companies below 51 per cent. This move is different from privatisation as the Centre will continue to hold a majority stake in these companies and they will still be classified as public sector enterprises.

These companies are those in which the Centre already has a stake below 60 per cent, and could include Indian Oil (current government stake of 51.5 per cent), NTPC Ltd (54.50 per cent), Bharat Electronics (58.83 per cent), BEML (54.03 per cent), Engineers India (52 per cent), GAIL India (52.66 per cent), and National Aluminum Co (52 per cent).

The stake in these companies will be pared through offers for sale (OFS) on the exchanges. 

Ahead of the proposal being taken to the CCEA, a group of secretaries is expected to meet on Friday to finalise the Cabinet note.

“The government is considering, in case where the undertaking is still to be retained in government control, to go below 51 per cent to an appropriate level on case to case basis. The government has also decided to modify the present policy of retaining 51 per cent 

government stake to retaining 51 per cent stake inclusive of the stake of government-controlled institutions,” Finance Minister Nirmala Sitharaman had said in her 2019-20 Budget speech on July 5.

For example, ONGC holds a 14 per cent stake, Oil India holds a 5.16 per cent stake, and LIC holds a 6.5 per cent stake in Indian Oil. Even if the Centre reduces its stake in Indian Oil to 30 per cent, the combined stake of the government and these PSUs in Indian Oil will still be above 55 per cent.

The Finance Ministry’s Department of Investment and Public Asset Management (DIPAM) is faced with its steepest yearly divestment target yet, tasked with accruing ~1.05 trillion for 2019-20, and these stake sales are expected to go some way in meeting that target.

However, the bulk of the proceeds will come from the planned privatisation of Bharat Petroleum, Air India, Container Corp, Shipping Corp, NEEPCO and THDC India, monetisation of land and other assets of PSUs, and follow-on offerings of the Centre’s two exchange-traded funds.