Centre looks to raise Rs 140 bn through basket share sale in 11 CPSEs

Public offering of rejigged CPSE ETF to hit markets by end-November

Speeding up the disinvestment drive, the centre is looking to raise as much as Rs 140-billion through a basket share sale in 11 central public sector enterprises (CPSEs). This disinvestment will be carried out through a rejigged version of the CSPE Exchange Traded Fund (ETF), which was first introduced in March 2014.

According to sources, the fundraising will be done through a follow-on fund offer (FFO), which will hit the market before the end of November. This will be the fourth and the biggest tranche of the CPSE ETF to hit the markets. The ETF is managed by Reliance Mutual Fund.

The centre has dropped Gail India, Container Corporation of India and Engineers India from the ETF. Instead, NPTC, NLC India and SJVN—have been added to the index, to make it more diversified. The reshuffle comes ahead of the FFO launch. The centre could further rejig the portfolio to include more stocks, said a person with the knowledge of the development.

To draw investors, the centre is planning to offer a discount of around five per cent to all the investors participating in the NFO. Typically, the discount is offered on the weighted average price of all the underlying securities during three-day NFO period.

On each of the past three occasions, the share sale had seen encouraging demand for investors and had also resulted in listing day gains. Thanks to low management fees, an ETF is considered to be a more cost-effective way of owning a portfolio of stocks vis-à-vis an actively managed mutual fund.

Every security in the ETF is assigned a weight depending on its free-float market capitalisation. Based on the weightage the centre has to transfer its holding to the FFO investors. NTPC, Coal India Indian Oil and ONGC are the top stocks in terms of weightage in the 10-stock CPSE ETF.

The ETF is coming at a time when investor sentiment towards public-sector undertaking is weak. The BSE PSU index, a gauge for the performance of key public sector undertakings (PSUs), is down 21 per cent this year, while the CPSE ETF has declined 15 per cent. In comparison, the benchmark Nifty is up around a per cent in 2018.

However, following the underperformance, the valuation discount between the CPSE ETF and Nifty has widened to historic highs. Currently, the benchmark Nifty trades around 18 times its estimated one-year forward earnings. The CPSE ETF, on the other hand, trades at just eight times. Also, the CPSE ETF is much more lucrative in terms of dividend payouts. It offers a dividend yield of around five per cent compared to 1.5 per cent offered by the Nifty.

So far this fiscal, the centre has mopped up Rs 152 billion as against a target of Rs 800 billion for 2018-19 disinvestment. Recently, the centre raised Rs 52 billion by divesting 3.2 per cent in Coal India through an offer for sale. Earlier, it had mopped up Rs 83 billion through an FFO of Bharat-22 ETF, which comprises of 22 stocks in which the government has shareholding.