Govt mulls PSU disinvestment piggyriding on FPOs

The government will consider disinvesting its stakes in profitable listed public sector units when these come out with follow-on offers. 

"The government would consider sale of a part of its shareholding by riding piggyback (on) the follow-on public offerings," said a note prepared by the Finance Ministry on the occasion of Economic Editors' Conference.

The government would sell directly its stake in NTPC without issuance of any fresh equity.

In case of the other two state-run firms, Satluj Jal Vidyut Nigam and Rural Electrification Corporation whose disinvestment has been approved, there would be a mix of fresh equity and direct government stake sale.

There was a mix of direct disinvestment as well as fresh equity in the case of NHPC and Oil India that were listed recently.

The note said the government would focus first on these listed profitable public sector companies where less than 10 per cent stake is held by the public.

It said the government can go in for either fresh equity or direct stake sale, or both, in the IPOs.

The note said the National Investment Fund, which gets proceeds of disinvestments, has earned less returns on investments than the minimum required in the first two years.

"Average income (of NIF) for first year was 8.47 per cent. Average income of second year was 10.02 per cent. Thus, the average income was 9.245 per cent against the hurdle rate of 9.25 per cent," it said.

Hurdle rate is the required rate of return above which an investment makes sense and below that it does not.

The norms for NIF says, "The Fund will be professionally managed to provide sustainable returns to the government without depleting the corpus. Selected public sector mutual funds will be entrusted with the management of the corpus of the Fund."

At present, asset management companies of UTI MF, SBI, and LIC manage the funds of the NIF.

The NIF has a corpus of Rs 1,814.45 crore, collected from the proceeds of disinvestment in the Power Grid Corporation and the Rural Electrification Corporation.

It was created in 2005 to channelise realisation from sale of minority shareholding of the government in profitable public sector companies.

The income of the fund is used for investment in social sector projects, capital investment in selected profitable and revivable PSUs that yield adequate returns to enlarge their capital base.