Public shareholding rules may fill coffers

The minimum public shareholding (MPS) requirement might ensure that a sizeable chunk of the government’s steep disinvestment target for 2017-18 is achieved.

To meet the 25 per cent compulsory public float requirement set by the Securities and Exchange of India (Sebi), the government will have to divest shares worth nearly Rs 22,000 crore in 27 public sector undertakings (PSUs) by August 21.

The Centre set in the Budget the highest disinvestment target of Rs 72,500 crore for 2017-18, against Rs 56,500 crore set for this financial year. However, only Rs 46,500 crore of next financial year’s target has to come via minority share sales in PSUs. Of the balance, Rs 15,000 crore will come via strategic investment and Rs 11,000 crore from listing of general insurance companies.

Market players said Sebi’s MPS requirement could be a blessing in disguise as it would help achieve nearly half of next financial year’s minority disinvestment target. Also, Sebi, is not in favour of extending the August deadline set for the government. “The MPS requirement will definitely be a big boost for next year’s disinvestment programme. A tight deadline set by Sebi will force the government to bring down stakes in PSUs to at least 75 per cent,” said an investment banker, requesting anonymity.

The deadline for private companies to increase their public holdings to at least 25 per cent ended in June 2013. The government was asked to reduce public holdings to at least 10 per cent by August 2013 and to 25 per cent by August 2017. The objective of the MPS requirement was to improve liquidity in a stock for better price discovery and to curb manipulation.

Market experts said domestic factors would be supportive for government disinvestment. However, a lot could also depend on global factors.

“The market has reacted positively to the Budget as it has maintained a good balance between growth and fiscal prudence,” said Ravi Muthukrishnan, co-head of research at ICICI Securities.

“Domestic factors may not be so much of a worry for the government’s disinvestment drive. Economy and earnings are expected to improve. Domestic flows have been strong. However, there is a high possibility that overseas flows may continue to remain weak due to the developments in the US, which may weigh on the markets.”

Some of the PSUs where the government currently holds stake in excess of 75 per cent include Coal India, NLC India and SJVN Ltd.

The government can mop up around Rs 14,000 crore of it reduces its stake to 75 per cent in these three companies. Besides these, there are 24 other PSUs where the government currently holds between 75.1 per cent and 94 per cent. The Centre may even look to disinvest some of the stakes this financial year itself.