Centre may hold on to HZL-Balco, SUUTI stakes in foreseeable future

Change in stance as stakes are now seen as longer term investment; Fiscal situation comfortable, no need to offload these stakes, say officials

The government’s stakes in Hindustan Zinc Ltd (HZL)-Bharat Aluminium Company Ltd (Balco), Axis Bank, Larsen & Toubro (L&T), and ITC have been part of its disinvestment plans for years, though hardly ever has any sale been carried out. That stance is now likely to change with these stakes being seen as a longer term investment.

The Centre holds a 29.5 per cent stake in Hindustan Zinc, and 49 per cent stake in Balco, an unlisted company. It holds 11.5 per cent stake in Axis Bank, eight per cent in L&T, and 11.2 per cent stake in ITC through the Specified Undertakings of Unit Trust of India (SUUTI) as of June 2015.

These stakes have been part of the Centre’s disinvestment road map, if not in the budgeted estimates, then at least in the medium term fiscal policy statement. For 2015-16 as well, the Budget says that the Centre’s strategic stake sale efforts could include “sale of government holdings in non-government commercial entities, SUUTI, Balco, HZL etc.”

WHY A SALE MIGHT NOT HAPPEN THIS YEAR

• REASON 1: After a number of years of fiscal scares contained only by slashing expenditures, 2015-16 indeed looks very comfortable due to savings on subsidies on back of lower commodity prices, and due to an impressive increase in indirect tax collections
• REASON 2: The volatility in the global markets has led to a fall in the value of the stake the government holds in these companies. Hence, these are now being seen as long-term investments for which the Centre is willing to wait till it gets an optimum value for the shares it may sell

Senior government officials say that there are two reasons why a sale would not happen this year, and even over the next couple of financial years. First, after a number of years of fiscal scares contained only by slashing expenditures, 2015-16 indeed looks very comfortable due to savings on subsidies on back of lower commodity prices, and due to an impressive increase in indirect tax collections. For April-August, indirect taxes proceeds were up 36 per cent compared to the same period last year. Even direct tax numbers are expected to rise September onwards.

For 2015-16, the Centre has budgeted Rs 41,000 crore from minority stake sale in state-owned companies, and Rs 28,500 from strategic sale in unviable government assets, and stakes in non-government companies like HZL-Balco, Axis, ITC and L&T. However, the sense amongst Budget planners is that there may not be a need for the disinvestment department to meet the steep targets, as long as the proceeds are higher than last year’s Rs 26,000 crore.

Second, the volatility in the global markets has led to a fall in the value of the stake the government holds in these companies. Hence, these are now being seen as long-term investments for which the Centre is willing to wait till it gets an optimum value for the shares it may sell.

This is true especially in the case of a resources company like Hindustan Zinc. Whereas the sale of centre's stake in HZL will fetch the exchequer Rs 16,428 crore as of Thursday, it would have garnered upwards of Rs 23,000 crore when the stock was trading at its calendar year high in mid-February. Similarly, the scrips of ITC, L&T and Axis are all off their year highs.

Of course the issue of HZL-Balco has a legal aspect to it, as is stuck in the Supreme Court after a body called the National Confederation of Officers’ Associations of Central Public Sector Undertakings filed a PIL last year challenging the proposed disinvestment, saying the decision was “irrational, illogical, illegal, unreasonable, malafide and arbitrary”.