Govt asks listed PSUs to expand equity bases

Profitable listed public sector undertakings (PSUs), in need of funds to meet their capital expenditure, will be encouraged to approach the stock market with follow-on public offerings. The government will consider the sale of a part of its shareholding in such PSUs when they expand their equity bases by issuing fresh shares.

This has been made clear in an approach paper on disinvestment, prepared by the finance ministry. The paper also notes that the government policy will now focus on listing of profitable PSUs through offer for sale of equity or issue of fresh shares.

Such listing can take place simultaneously with the current round of disinvestments, where profitable and listed PSUs with less than 10 per cent public shareholding are being asked to go in for follow-on public offerings of shares.

The logic of the new approach to disinvestment is that listing of PSUs on the stock exchanges has many inherent advantages like enhancing the value of shareholders of these companies. Higher disclosure levels bring in greater transparency and a professional corporate culture. Also, independent directors on the boards of these listed PSUs will make the management more accountable. Expectations of investors will also put pressure on the management to perform efficiently and will help unlock the true value of the enterprise.

The new approach to disinvestment is in pursuance of Finance Minister Pranab Mukherjee’s earlier announcement that the government while retaining at least 51 per cent stake in PSUS will encourage greater participation from ordinary investors under the disinvestment programme. Mukherjee’s statement also made it clear that PSUs in the banking and insurance sectors would remain in the public sector and would be given all support including capital infusion, to grow and remain competitive.

In the last few months, the government has divested its stake in several PSUs either through follow-on offers or through an initial public offering. According to one estimate, the government might mobilise over Rs 41,000 crore if all the proposals of disinvestment mooted during the year are implemented before March 2010.

Disinvestment of government equity in PSUs had slowed down considerably in the first five years of the United Progressive Alliance government because its key alliance partner, the Left parties, had opposed any move to sell even minority shares of profitable public enterprises. The policy of disinvestment started in 1991 under the PV Narasimha Rao government. During the National Democratic Alliance rule from 1998 to 2004, the scope of the disinvestment policy was extended to cover strategic sales of companies to the private sector.

The total proceeds from such disinvestment during the last 18 years are estimated at over Rs 51,000 crore.