RITES stake sale on course; price band likely to be decided today

The government plans to divest at least 12.72% in RITES to raise Rs 4-4.5 billion

The government is looking to divest at least 12.72 per cent stake in Railway subsidiary RITES in a month's time. 

According to sources close to the development, the plan is to raise Rs 4-4.5 billion through the listing of RITES. "The price band is likely to be decided at a meeting scheduled today. Out of 12.72 per cent (to be sold), 0.72 per cent will be available for employees," said a government official. However, the proposed listing of another railway arm IRFC is likely to get delayed further for lack of clarity on the exemption of a deferred tax liability. 

In the month of February, the ministry of corporate affairs has exempted IRFC from an accumulated deferred tax liability of Rs 63.92 billion, which was supposed to be added to the company’s net worth. IRFC faced a deferred tax liability as its depreciation was greater than profit. The company did not pay tax under normal assessment and was subject to a minimum alternate tax (MAT) of 21 per cent. Besides, it had to make a provision for the deferred tax liability at 35 per cent. Thus, the company’s books were bearing a total tax provision of 56 per cent. After the exemption, this was supposed to come down to 21 per cent, leading to substantial gains in profit after tax (PAT), earnings per share and book value per share. “There is some lack of clarity on the issue which may delay the IRFC stake sale,” he said. 

The government had in the Union Budget set a disinvestment target of Rs 800 billion for 2018-19. Interestingly, total disinvestment proceeds for 2017-18 was Rs 1 trillion, higher than the target. Dipam has already invited bids for engaging advertising agency from RVNL divestment of up to 25 per cent. On the other hand, RITES, which has posted a turnover of Rs 15.09 billion in 2016-17, is strategically important to India as it has got operations in 55 countries across the world at present.