Disinvestment: Government Weighs Its Options
5/2/2013 9:00 PM Thursday
The Finance Ministry has ambitious plans of mopping up huge funds through disinvestments and is considering a number of alternatives for doing so. While Amit Bhanot provides an analysis of the various routes the government can take to achieve its target and discusses their pros and cons, the OFS route seems like the most practical one.
The government is quite ardent on achieving its disinvestment target and has chalked out some plans to do so. Its successful disinvestment spree that enabled it to gross an all-time high of Rs 23920 crore in FY13, has instilled a sense of confidence to raise another Rs 40000 crore this year through a series of issues.
As the Finance Minister is taking all possible steps to woo foreign investors for bridging India’s ever-increasing CAD, his ministry’s officials too are taking all possible efforts in this direction. The Department of Disinvestment (DOD), a key department under the Ministry of Finance, is working hard to ensure that the disinvestment target of Rs 40000 crore set for FY14 is met. Along with the usual Offer for Sale (OFS) method, the DOD is considering an array of different strategies to collect crucial funds including a buyback, Initial Public Offerings (IPOs) and Follow on Public Offers (FPOs).
But the way the government has undertaken disinvestment in the last two years raises some key questions about the sanctity of the ways adopted for stake sales, particularly of blue chip PSUs. In fact, a parliamentary standing committee on finance under the chairmanship of Yahwant Sinha not only termed the government’s disinvestment policy as ‘selling family's silver to pay grocery bills’, but also called for a greater market penetration and encouragement to retail investors’ participation.
The government certainly needs to resort to ways that attract more retail participation and this can be achieved efficiently via the OFS route, but that requires the government to generate awareness among retail investors regarding an OFS. Until now, retail participation in OFSs was very low owing to the confusion regarding their prices. “If we go by the benefits of OFS over other methods like FPOs, buybacks or even French Auctions, OFS certainly seems to be a better option. It saves on time and energy and the entire process can be carried out in a single day. Here, an investor can trade his scrip the next day, while it will take around eight to ten days in an FPO,” said Jagannadham Thunuguntla, Head of Research, SMC Global Securities.
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