The Department of Disinvestment has proposed an Exchange Traded Fund (ETF) of listed public sector enterprises that would constitute an offering of up to 3% of government holding.
The draft Cabinet note, which has been sent for inter-ministerial consultation, would be sent to the Cabinet Committee on Economic Affairs (CCEA) in the first week of January, for approval.
The Finance Ministry wing has also indicated that up to 5% of the new fund offer of the ETFs comprising stocks of the listed central public sector undertakings will be reserved for the eligible employees of the respective companies that will form part of the portfolio. However, allocation of the ETF units to the employees of the respective CPSEs subscribing under the employees’ reservation portion will not exceed Rs 2 lakh.
An ETF comprises a basket of assets (stocks, commodities, etc.) which trades on an exchange like a stock and tracks an index.
The proposed ETFs are targeted to help minimise market disruptions seen in public offerings of listed CPSEs, which, in turn, will increase the government’s ability to monetise partial stakes in listed companies, some of which have low liquidity and free float. This would further broadbase retail participation of shares of CPSEs, and help deepen the market for equity-based products. The government would also benefit from a pricing perspective, as part of the discounts could be back-ended, according to the draft Cabinet note.
The proposed ETFs will be launched within five months of the final approval, provided the market condition is favourable.
CCEA approval would also be sought for empowering the existing empowered group of Ministers (EGoM) to decide the constitution of the ETF portfolio, the price or net asset value at which the shares will be placed by the government at the disposal of the ETF provider. The EGoM will also have the power to decide the incentive structure for the investors, including upfront discounts and loyalty bonuses, for the distribution partners.
The government has plans to create and launch 24 ETFs comprising stocks of the listed CPSEs expected to be launched in the market early next fiscal year.
The 24 companies would include blue-chip PSUs like ONGC, Indian Oil, Power Finance Corporation, NTPC, NMDC and BHEL. ICICI Securities is advising the Department of Disinvestment to finalise the creating and launch of the proposed ETFs. Earlier, the government had said that the CPSE ETFs would be launched early next fiscal year.
