Govt in hunt for advisors to start ETF

The department of disinvestment will soon appoint internationally-reputed advisors for setting up an exchange-traded fund (ETF) for selling shares of public secor units to meet the year’s disinvestment target of Rs 30,000 crore.

"Internationally reputed merchant bankers, investment bankers, consulting firms and asset management companies, who have advised or have launched an equity ETF could be made eligible (as advisor)," an official told PTI.

After the appointment of the advisor, the department would appoint an ETF provider, which will manage the fund on behalf of the government.

The government would soon appoint advisors on its proposal to attract investors by setting up an exchange-traded fund for central public sector enterprises.

As per the request of proposal to be floated by the department of disinvestment, the bidders of global merchant bankers should have advised or have been involved in a relevant capacity or have launched an equity ETF of Rs 1,000 crore or more between September 2009 and June 2012.

An inter-ministerial group (IMG) on creation of ETF comprising CPSE shares met earlier this month and discussed the modalities.

The ETF, which is an investment fund traded on stock exchanges much like stocks, would have an underlying benchmark which could be an index on the stock exchange.

After the appointment of the advisor, the Department of Disinvestment would appoint an ETF provider, which will manage the fund on behalf of the government.

"The Advisor could not only help address the different concerns regarding the product but also enable the DoD to firm up a fairly comprehensive proposal in terms of structuring," the official said. Under the planned ETF model, the DoD is planning to create a pool of shares of the PSUs it wants to divest and create a fund (ETF), which would be listed on stock exchanges. The DoD, however, is yet to decide the quantum of shares in the PSUs, which are identified for divestment, that would be part of the proposed ETF. The ETF market has the potential to touch USD 5 billion (around Rs 26,000 crore), Disinvestment Secretary Mohammad Haleem Khan had said. The Cabinet Committee on Economic Affairs on Friday approved the minority stake sale in four PSUs -- NALCO, MMTC, Hindustan Copper, NMDC -- which is likely to fetch around Rs 15,000 crore to the exchequer. Finance Minister P Chidambaram had last month asked officials to expedite the process of disinvestment so that state-owned companies could hit stock markets in time and help government achieve the target of Rs 30,000 crore in 2012-13. Although five months have passed in the current fiscal, the government so far has not been able to come out with a public issue.