Govt Considers Divestment At Discount

A meeting of the group of ministers on disinvestment will be convened in the next few days to decide on the proposal to simultaneously sell off public sector undertakings at "a discount" in the international and domestic markets beginning with Concor Ltd.

The meeting comes in the background of growing opinion that domestic offering would be better than Global Depository Receipts when international investor sentiment on emerging markets is low. The proposal envisages sale of equity at a discount to the prevailing market price.

The group of ministers includes deputy chairman of the Planning Commission Jaswant Singh, finance minister Yashwant Sinha and human resources development minister Murli Manohar Joshi.

 

Officials said although the cabinet had approved market pricing as a principle, the core group of secretaries on disinvestment would set a floor price. "Even though the cabinet has approved market-based pricing, a floor price is required," an official said.

The cabinet on Friday approved the proposal to allow market pricing as the deciding factor for divestment rather than some fixed price. This gives the core group of secretaries tremendous flexibility on deciding the timing and the size of an issue.

Earlier divestment proposals for VSNL and Concor ran aground because the government remained committed to a fixed price and did not relent either on the offer price or on the size of the issue. Four PSUs listed for divestment in the budget and slated to hit the markets in September are Concor, GAIL, VSNL and Indian Oil Corporation (IOC). The budget expects to raise Rs 5,000 crore from divestment in the current year.

The thinking in government is that ideally, the first case of disinvestment should be a combination of a GDR-cum-public issue. "If you go for a domestic issue alone the discount that may have to be offered would be higher than what you would have to fork out for a much higher discount," an official said.

Officials explained that in the case of Concor there was very little liquidity and hence the domestic price tended to be sticky. But if the government offloaded the entire stock in the domestic market, there was an outside of the risk of the price being beaten down and thereby jeopardising future rounds.