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It is also contended that the functioning of many public sector units (PSUs)

has been characterized by low productivity, unsatisfactory quality of goods,

excessive manpower utilization, inadequate human resource development and
low rate of return on capital. For instance, between 1980 and 2002, the average
rate of return on capital employed by PSUs was about 3.4% as against the
average cost of borrowing, which was 8.66%. Disinvestment (or divestment) of
the PSUs has therefore been offered as one of the solutions in this context

Disinvestment involves the sale of equity and bond capital invested by the
government in PSUs. It also implies the sale of governments loan capital in PSUs
through securitization. However, it is the government and not the PSUs who receive
money from disinvestment.
The fixation of share/bond price is an important aspect of disinvestment. Now, the
Disinvestment Commission determines the share/bond price. Disinvested shares are
listed, quoted and traded on the stock market. Indian and foreign financial institutions,
banks, mutual funds, companies as well as individuals can buy disinvested shares /

Disinvestment is generally expected to achieve a greater inflow of private capital

and the use of private management practices in PSUs, as well as enable more
effective monitoring of management discipline by the private shareholders. Such
changes would lead to an increase in the operational efficiency and the market
value of the PSUs. This in turn would enable the much needed revenue
generation by the government and help reduce deficit financing.

However, to date the market experience has been otherwise. The large
national budgetary deficit on revenue account has been increasing. The
government has not used the disinvestment proceeds to finance expenditure on
capital account; i.e. the disinvestment policy has resulted in capital consumption
rather than generation. Administrative costs of the disinvestment process have
also been unduly high.

The actual receipts through disinvestment have often fallen far short of their
target (see figure). During the period 1991-92 to 2002-2003, the government had
targeted the mobilization of about Rs. 78,300 crores through disinvestment, but it
could actually mobilize only Rs. 30,917 crores.

Problems associated with Disinvestment

A number of problems and issues have bedevilled the disinvestment
process. The number of bidders for equity has been small not only in
the case of financially weak PSUs, but also in that of better-performing
PSUs. Besides, the government has often compelled financial
institutions, UTI and other mutual funds to purchase the equity which
was being unloaded through disinvestment. These organizations have
not been very enthusiastic in listing and trading of shares purchased
by them as it would reduce their control over PSUs. Instances of insider
trading of shares by them have also come to light. All this has led to
low valuation or under pricing of equity.
Further, in many cases, disinvestment has not really changed the
ownership of PSUs, as the government has retained a majority stake in
them. There has been some apprehension that disinvestment of PSUs
might result in the �crowding out� of private corporates (through
lowered subscription to their shares) from the primary capital market

An important fact that needs to be remembered in the context of divestment is

that the equity in PSUs essentially belongs to the people. Thus, several
independent commentators have maintained that in the absence of wider
national consensus, a mere government decision to disinvest is not enough to
carry out the sale of people�s assets. Inadequate information about PSUs has
impeded free, competitive and efficient bidding of shares, and a free trading of
those shares. Also, since the PSUs do not benefit monetarily from disinvestment,
they have been reluctant to prepare and distribute prospectuses. This has in turn
prevented the disinvestment process from being completely open and

It is not clear if the rationale for divestment process is well-founded. The

assumption of higher efficiency, better / ethical management practices and better
monitoring by the private shareholders in the case of the private sector � all of
which supposedly underlie the disinvestment rationale � is not always borne out
by business trends and facts.

Total disinvestment of PSUs would naturally concentrate economic and

political power in the hands of the private corporate sector. The US economist
Kenneth Galbraith had visualized a role of �countervailing power� for the
PSUs. While the creation of PSUs originally had economic, social welfare and
political objectives, their current restructuring through disinvestment is being
undertaken primarily out of need of government finances and economic
Lastly, to the extent that the sale of government equity in PSUs is to the
Indian private sector, there is no decline in national wealth. But the sale of such
equity to foreign companies has far more serious implications relating to national
wealth, control and power, particularly if the equity is sold below the �correct�
If the disinvestment policy is to be in wider public interests, it is necessary to
examine systematically, issues such as - the �correct� valuation of shares, the
�crowding out� possibility, the appropriate use of disinvestment proceeds and
the institutional and other prerequisites.

Evolution of the Disinvestment Policy

1. The Statement of Industrial Policy dated July 24, 1991 stated that in
the case of selected enterprises, part of Government holdings in the
equity share capital of these enterprises will be disinvested in order to
provide further market discipline to the performance of public
enterprises.Thus, disinvestment of the Government’s equity in CPSUs
(Central Public Sector Units) started in 1991-92, when minority
shareholding of the Central Government in 30 individual CPSUs was sold
to selected financial institutions (LIC, GIC, UTI) in bundles, in order to
ensure that along with the attractive shares, the not so attractive shares
also got sold. Subsequently, shares of individual CPSUs were sold and
the category of eligible buyers was gradually expanded to include
individuals, NRIs and registered FIIs. By 1997, sale through the GDR
route was also initiated and MTNL (1997-98), VSNL (1998-99) and GAIL
(1999-2000) all used the opportunity to access the GDR market. The
number of listed CPSUs on domestic stock exchange stood at 42 as on

2. The policy on disinvestment has evolved through statements of Finance

Ministers in their budget speeches. In the interim budget 1991-92, it was
announced that the Government would disinvest up to 20 per cent of its equity
in selected public sector undertakings in favour of mutual funds and financial
or investment institutions in the public sector to broad-base the
shareholding, improve management, enhance availability of resources for
these CPSUs and yield resources for the exchequer. 3. The Rangarajan
Committee recommended in April 1993 that the percentage of equity to be
disinvested should be generally under 49% in industries reserved for the public
sector and over 74% in other industries. As per statement of Industrial Policy
dated 24th July 1991 the following industries were proposed to be reserved
for the public sector:- Arms and ammunition and allied items of defence
equipment, Defence aircraft and warships.
Atomic Energy
Coal and lignite
Mineral oils
Mining of iron ore, manganese ore, chrome ore, gypsum sulphur, gold and
Mining of copper, lead, zinc, tin, molybdenum and wolfram
Minerals specified in the Schedule to the Atomic Energy (Control of Production
and Use) Order, 1953
Railway transport 4. In the budget speech of 1996-97, the proposal to establish
a Disinvestment Commission was announced. It was also stated that the
revenues generated from such disinvestment will be utilised for allocation to
education and health sectors and for creating a fund to strengthen CPSUs
5. The Public Sector Disinvestment Commission was established on 23rd
August 1996, for a period of three years, as an independent, non-statutory,
advisory body with Shri G.V. Ramakrishna as full time Chairman, four other
Members (part time) and a full time Member Secretary. 72 CPSUs were
referred to the Commission. Subsequently, 8 cases were withdrawn. The
Commission submitted 12 reports for 58 CPSUs, recommending strategic sale
in 28 cases, trade sale in 8 cases, closure of 4 units, equity sales in 6 cases
and no change (disinvestment deferred) in 12 cases. The Commission did not
take up examination of the cases of six CPSUs, which were registered with the
Board for Industrial & Financial Reconstruction (BIFR). The tenure of the
Chairman of the Commission was extended till 30th November 1999.

6. In the budget speech of 1998–99, it was announced that, in the generality

of cases, the Government’s shareholding in CPSUs would be brought down to
26%. In the case of CPSUs involving strategic considerations, the Government
would continue to retain majority shareholding. The interest of workers would
be protected in all cases.

7. In the budget speech of 1999-2000, it was announced that Government's

strategy towards the CPSUs would continue to encompass a judicious mix of
strengthening strategic units, privatising non-strategic ones through gradual
disinvestment or strategic sale and devising viable rehabilitation strategies for
weak units.

8. On 16th March 1999, the Government classified the CPSUs into strategic
and non-strategic areas for the purpose of disinvestment. It was decided that
the strategic CPSUs would be those functioning in areas of:

o Arms and ammunition and the allied items of defence equipment, defence
aircrafts and warships

o Atomic energy (except in the areas related to the generation of nuclear

power and applications of radiation and radio-isotopes to agriculture, medicine
and non-strategic industries)

o Railway transport.

All other CPSUs were to be considered as being non-strategic. For the non-
strategic CPSUs, it was decided that reduction of the Government’s
shareholding to 26% would not be automatic and the manner and pace of
doing so would be decided on a case-by-case basis on the following
considerations: a) Whether the industrial sector required the presence of
the public sector as a countervailing force to prevent concentration of power in
private hands, and b) Whether the industrial sector required a proper
regulatory mechanism to protect the consumer interests before Public Sector
Enterprises were privatised.

9. It was also decided to establish a new Department for Disinvestment to

systematize the policy approach to disinvestment and privatisation
and to give a fresh impetus to this programme. The Department came
into being on 10th December 1999. 10. In the budget speech of 2000-
2001, it was announced that the main elements of the Government’s
policy were to restructure and revive potentially viable CPSUs; close
down CPSUs which cannot be revivved; bring down Government’s
shareholding in all non-strategic CPSUs to 26% or lower, if necessary;
and fully protect the interests of workers. The receipts from disinvestment
and privatisation will be used for meeting expenditure on social sectors,
restructuring of CPSUs and for retiring public debt.

Reconstituted Public Sector Disinvestment Commission 11.

The Public Sector Disinvestment Commission was re-constituted on 24th

July 2001 for a period of two years with Dr. R.H. Patil as Chairman (part
time) along with four other Members (part time) and a full time Member
Secretary. The then Ministry of Disinvestment had informed the Commission on
23rd January 2002 that all non-strategic CPSUs, including subsidiaries, but
excluding IOC, ONGC and GAIL, stood referred to the Commission for it to
prioritize, examine and make recommendations in the light of the
Government policies articulated earlier on 16th March 1999 and the budget
speeches of Finance Ministers from time to time. The Disinvestment
Commissions in 25 reports submitted between February 1997 – March 2004
disinvestment through strategic sale in 59 cases; disinvestment other than
strategic sale in 32 cases and closure was recommended in 4 cases. The term
of the Commission was subsequently extended till 31st October 2004. The
Commission ceased to exist from 1st November, 2004. 12. In the budget speech
of 2001 – 2002, it was announced that CPSUs must be strengthened to compete
and prosper in the new environment. A receipt of Rs. 12,000 crore was budgeted
from disinvestment. Out of this, an amount of Rs. 7,000 crore was to be used for
providing restructuring assistance to CPSUs, safety net to workers and reduction
of debt burden and a sum of Rs. 5,000 crore for providing additional budgetary
support for the Plan, primarily in the social and infrastructure sectors. This
additional allocation for the Plan would be contingent upon realisation of the
anticipated receipts. 13. The Government decided in September 2002 that
CPSUs and Central Government owned cooperative societies (where
Government’s ownership is 51% or more) should not be permitted to
participate as bidders in the disinvestment of other CPSUs unless specifically
approved by the Core Group of Secretaries on Disinvestment (CGD). In
December 2002 on the basis of a proposal of the Department of Fertilizers, it
was decided that Multi State Cooperative Societies under the Department of
Fertilizers be allowed to participate in the disinvestment of fertilizer CPSUs
including National Fertilizers Limited. 14. In a suo motu statement made in both
Houses of Parliament on 9th December, 2002, by the then Minister of
Disinvestment, the Government reiterated the policy as “The main objective of
disinvestment is to put national resources and assets to optimal use and in
particular to unleash the productive potential inherent in our public sector
enterprises. The policy of disinvestment specifically aims at:
Modernization and up gradation of Public Sector Enterprises
Creation of new assets
Generating of employment
Retiring of public debt Government would continue to ensure that disinvestment
does not result in alienation of national assets, which, through the process of
disinvestment, remain where they are. It would also ensure that disinvestment
does not result in private monopolies. In order to provide complete visibility
to the Government’s continued commitment of utilisation of disinvestment
proceeds for social and infrastructure sectors, the Government would set up a
Disinvestment Proceeds Fund. This Fund would be used for financing fresh
employment opportunities and investment, and for retirement of public debt. For
the disinvestment of natural asset companies, the Ministry of Finance and the
Ministry of Disinvestment would work out guidelines. The Ministry of Finance
would also prepare for consideration of the
Retiring of public debt Government would continue to ensure that disinvestment
does not result in alienation of national assets, which, through the process of
disinvestment, remain where they are. It would also ensure that disinvestment
does not result in private monopolies. In order to provide complete visibility
to the Government’s continued commitment of utilisation of disinvestment
proceeds for social and infrastructure sectors, the Government would set up a
Disinvestment Proceeds Fund. This Fund would be used for financing fresh
employment opportunities and investment, and for retirement of public debt. For
the disinvestment of natural asset companies, the Ministry of Finance and the
Ministry of Disinvestment would work out guidelines. The Ministry of Finance
would also prepare for consideration of the Cabinet Committee on Disinvestment
a paper on the feasibility and modalities of setting up an Asset Management
Company to hold manage and dispose the residual holding of the Government in
the companies in which the Government’s equity has been disinvested to a
strategic partner.” 15. The then Ministry of Disinvestment issued guidelines
regarding Management-Employee Bids in Strategic Sale on 25th April 2003
to encourage and facilitate the participation of employee participation in
strategic sales. 16. In the budget speech for 2003-04, the Government
announced that details regarding the already announced Disinvestment Fund
and Asset Management Company, to hold residual shares post disinvestment,
would be finalized early in 2003-04

Current policy on disinvestment and programmes

In May 2004, Government adopted the National Common Minimum
Programme (NCMP), which outlines the policy of the Government with respect
to the public sector. The relevant extracts of NCMP are: “The UPA Government
is committed to a strong and effective public sector whose social objectives
are met by its commercial functioning. But for this, there is need for selectivity
and a strategic focus. The UPA is pledged to devolve full managerial and
commercial autonomy to successful, profit-making companies operating in a
competitive environment. Generally profit-making companies will not be
privatized. All privatizations will be considered on a transparent and consultative
case-by-case basis. The UPA will retain existing “navratna” companies in the
public sector while these companies raise resources from the capital market.
While every effort will be made to modernize and restructure sick public
sector companies raise resources from the capital market. While every effort
will be made to modernize and restructure sick public sector companies
and revive sick industry, chronically loss-making companies will either be
sold-off, or closed, after all workers have got their legitimate dues and
compensation. The UPA will induct private industry to turn around companies
that have potential for revival. The UPA Government believes that privatization
should increase competition, not decrease it. It will not support the emergence
of any monopoly that only restricts competition. It also believes that there
must be a direct link between privatization and social needs – like, for
example, the use of privatization revenues for designated social sector schemes.
Public sector companies and nationalized banks will be encouraged to enter
the capital market to raise resources and offer new investment avenues to
retail investors”

Proposals under Implementation

IPOs of Power Companies Three power companies, viz., Rural Electrification

Corporation Limited (REC), Power Grid Corporation of India Limited (PGCIL)
and National Hydro-electric Power Corporation Limited (NHPC), propose to make
public offerings of equity equal to 10% each of their pre-issue paid-up equity
capital. Government has decided on 8.2.2007 to piggy-back with an ‘Offer for
Sale’ of 10%, 5% and 5% respectively out of its shareholding. The realisation
based on book value has been estimated at Rs. 1651 crore. The actual
realization is expected to be higher and would depend on the prevailing market
condition. Brief on the Initial Public Offering of shares of Power Grid Corporation
of India Limited (PGCIL) The Initial Public Offering (IPO of 57,39,32,895 shares
of Power Grid Corporation of India Limited (PGCIL), consisting of an ‘Offer
for Sale’ of 19,13,10,965 equity shares out of Governments shareholding
and a fresh issue of 38,26,21,930 equity shares by the company was open for
subscription from 10th September, 2007 to 13th September, 2007. The issue
was oversubscribed by 64.8 times. The Issue Price was fixed at the top of the
Price Band (Rs.44/- to Rs.52/- per share) viz. at Rs. 52/- per share. Accordingly,
an amount of Rs.994.82 crore accrued to Government account from the sale
of its shares in PGCIL. The money was credited to Government account on
3rd October, 2007 and trading in the shares of PGCIL commenced on 5th
October, 2007.

The NEP consisted of wide ranging economic reforms. The thrust of the policies was
towards creating a more competitive environment in the economy and removing the
barriers to entry and growth of firms. This set of policies can broadly be classified into
two groups:
The stabilization measures - are short term measures, intended to correct some of the
weaknesses that have developed in the balance of payments and to bring inflation under
control. There was a need to maintain sufficient foreign exchange reserves and keep the
rising prices under control.

The structural reform measures - are long-term measures, aimed at improving the
efficiency of the economy and increasing its international competitiveness by removing
the rigidities in various segments of the Indian economy. Disinvestment means selling
government equity in public sector units (PSUs) to private parties. Thus Disinvestment
refers to the sale or liquidation of an asset or subsidiary of an organization or
government. It is also known as divestiture or divestment. In India the process of
disinvestment began since 1991-92. The need for disinvestment arises from the fact of
poor performance of PSUs.

The major thrust for Disinvestment Policy in India came through the Industrial Policy
Statement 1991.The policy stated that the government would disinvest part of their
equities in selected PSEs. However it did not stake any cap or limit on the extent of
disinvestment. It also did not restrict disinvestment to any class of investors. The main
objective was to improve overall performance of the PSEs.


To improve performance of units

The main argument in favor of disinvestment is the poor performance of PSUs. For
instance the average return on investment was hardly 2% during the 1980s and 1990s.

To reduce budgetary deficits

One of the factors of budgetary deficits is the allocation of huge amount of funds to
PSUs. Due to lack of improvement of performance in such units, these deficits lead to
rising prices which in turn affected the economy.

To overcome the problem of political involvement in PSUs

There was too much political interference with respect to location of the project, selection
and promotion of top personnel, awarding important contracts etc. This has lead to poor
performance of the PSUs.

Enable the government to concentrate on Social development

It is of the belief that by transferring PSUs to private players, it would enable the
government to concentrate on the government’s main job i.e. social development in areas
such as primary health, primary education, law and order, family welfare and so on.

• To provide better service to customers

• To ensure proper planning and execution
• To overcome the problem of corruption
• To fix the responsibility on management
• To make efficient use of disinvestment proceeds

Public sector enterprises (PSEs) or Public Sector Units (PSUs), which were given a
special role in India’s planned economy, grew both in terms of numbers and investment
for over four decades from the early 1950s.

At the end of the Seventh Plan in 1990, there were 244 PSEs and the investment in them
had gone up to Rs. 99, 329 crores. Although disinvestments had started from the early
at the end of the Eighth Plan in 1997, investment had soared to Rs. 2, 13,610 crores. At
the end of the fiscal year 2000-01, PSEs had a total investment of Rs. 2, 74, 114 crores.
The PSEs made a significant contribution to industrial production, 100 per cent in lignite,
over 80 per cent in coal, crude oil and zinc, almost 50 per cent in aluminum and over 30
per cent in finished steel.


The policy on disinvestment has been articulated in paragraph 34 of President’s Address

to Joint Session of Parliament on 4th June, 2009 and reads as under:

Our fellow citizens have every right to own part of the shares of public sector companies
while the Government retains majority shareholding and control. My Government will
develop a roadmap for listing and people-ownership of public sector undertakings while
ensuring that Government equity does not fall below 51 %.

The above policy was reaffirmed by the Finance Minister in paragraph 37 of his Budget
Speech on 6th July, 2009. Paragraph 37 of FM’s Budget Speech reads as:

The Public Sector Undertakings are the wealth of the nation, and part of this wealth
should rest in the hands of the people. While retaining at least 51 per cent Government
equity in our enterprises, I propose to encourage people’s participation in our
disinvestment programme. Here, I must state clearly that public sector enterprises such
as banks and insurance companies will remain in the public sector and will be given all
support, including capital infusion, to grow and remain competitive.

The Government, on 5th November 2009 has approved the following action plan for
disinvesting Government equity in profit making CPSUs:
i) Already listed profitable CPSUs, not meeting the mandatory public shareholding

of 10%, are to be made compliant;

ii) All CPSUs having positive net worth, no accumulated losses and having earned net
profit for the three preceding consecutive years are to be listed through Public Offerings,
out of Government shareholding or issue of Fresh Equity by the company or a
combination of both; and

iii) The proceeds from disinvestment would be channelized into National Investment
Fund and during April, 2009 to March, 2012 would be available in full for meeting the
capital expenditure requirements of selected social sector programmes decided by the
Planning Commission / Department of Expenditure. The status quo ante will be restored
from April, 2012.


1. Most of the public sector companies are loss-making and are a burden on public
2. Since the government is corrupt, the public sector companies are also corruptly
3. In the hands of the private sector, the public sector companies would be run more

As pointed out by experts, if the government sells the asset that provides income or profit
equal to or more than the prevailing interest on government securities, then the
government would lose future income by selling it. On the other hand, from the private
sectors point of view,it makes no sense to purchase an asset unless it provides at least a
rate of return equal to the rate of interest on government securities, because that is where
the private investor could otherwise put the money. This means that for such sales to
occur, either

a. The private sector must believe that it is capable of generating more profits than
the public sector.
b. The asset must be undervalued so that the actual rate of return for the private
buyer turns out to be higher, which really means that the State exchequer has lost
the money.

According to experts, whatever be the technique, to think that sale of PSU shares is the
only method of reform, reflects a closed mind. Treating process of disinvestment as
revenue in budgets creates pressure in selling, apart from being fiscal imprudence; the
capital proceeds could be used to consolidate and revitalise Navratnas. Critics point out
that, the whole disinvestments programme has been carried out by the government in a
hasty, unplanned and hesitant way. As a result, the public sector equity has been sold for
a fraction of what it could actually fetch. However this is only one part of the story.
The entire manner in which the proceeds from the disinvestments have been used is also
being debated. The government has used these proceeds to offset the shortfalls in revenue
receipts and thus reduce the fiscal deficit which it was required to do as a part of the IMF
stabilization programme. The disinvestments of governments proceeds in profitable
public sector enterprises and using the proceeds for current consumption needs amounts
to frittering away of valuable public assets.

The correct policy would have been to allow the public sector themselves to use the
resources they generate via this programme. This would have helped them to revitalize
and expand their activities .The present policy has deprived the government of future
yield from these enterprises.


• Poor performance of disinvestment in India

• Poor Management
• Lack of environment creation
• Delay tactics
• Selfish interests
• Some PSUs were not worth (Bharat Leather Corporation, Scooters India Ltd)
• Unproductive use of disinvestment proceeds
• Disinvestment and Unemployment
• Profit hungry private sector
• Lower value of realization
• Privatization leads to concentration of wealth


The debate and the case study indicates that there are many complicated economic,
political and legal issues such as Debate on the Sale Profitable vs. Unprofitable
Enterprises, debate on the sale of Large or Small Firms, Investment decisions before
Disinvestment and Investment requirement from the private participants post
disinvestment, management of Public Enterprises Debt, categorizing the Social Assets
and economic assets of the PSU’s, probable environmental concerns.

Recent Investments in IPO

Ennore Port is mulling to raise funds from the market for the Rs 1,600-crore
capital expenditure programme it envisaged for the next five years.

The proposed projects include building rail and road connectivity, besides
deepening of approach channel to 20 metres for handling capesize bulk carriers.
However, the port being a mini-ratna, can not expect to receive any financial
support from the government towards the expansion.

It is in this context that the country's only corporate port entity is proposing to
float initial public offer ( IPO )) for the funds. The port has two shareholders:
Centre (68%) and Chennai Port Trust (32%) and with issuance of share, the
shareholding of the Centre could fall from its current level.

According to port analysts, if the float materialises, the issue would be in line with
the disinvestment policy of the government. Accordingly, the government is seen
diluting its stake in various undertakings.

For example, the Centre last week decided to sell 10% of its equity in Shipping
Corporation of India through a follow-on public offer, in which the company will
also issue fresh shares. Similarly, the Centre has approved Steel Authority of
India and Coal India to go for public offer of shares as it seeks to raise Rs 40,000
crore through disinvestment.

Though in the initial stages yet, according to sources, the port is expected to
submit a plan before the ministry can take a call. Once the ministry agrees, the
Disinvestment Department in finance ministry will take a view. Accordingly, the
Cabinet Committee on Economic Affairs will take the final decision.

With the ministry of shipping planning to corporatise more ports within its control,
the way this first corporate entity performs will help shape the future course of
India's 12 major ports.

The initial public offer (IPO) of India's largest coal producing company Coal
India (CIL) has seen huge response from investors and has received bids for
more than USD 53 billion worth of equity shares as against issue size of USD 3.5
billion on last day.

The issue has been subscribed more than 15.28 times, including major
contribution from qualified institutional buyers (QIBs) followed by non-institutional
investors (NIIs) and retail investors.

For the reserved portion of QIBs (which closed on Wednesday and was
subscribed 24.7 times), foreign institutional investors put in bids for USD 27.5
billion worth of equity shares followed by domestic financial institutions and
mutual funds with USD 10 billion and USD 1.4 billion, respectively. (USD 1 = Rs

The reserved portion of non-institutional investors was subscribed 25.4 times and
retail 2.31 times while employees' portion was subscribed just 0.1 times.

Institutional investors have gone all out for Coal India with the IPO getting
highest-ever demand received by an Indian issue.

11 Aug, 2010
The government is now looking to add MMTC and Shipping Corporation of India
to its disinvestment list, raising the possibility of the proceeds crossing the
budgeted Rs 40,000-crore mark for the current fiscal.

The Union Cabinet has already approved disinvestment in Coal India, SAIL,
Power Grid and Hindustan Copper and Manganese Ore India. All these
companies could raise Rs 28,000 crore for the government while a 10% stake of
MMTC alone could fetch over Rs 15,000 crore.

The government has so far mopped up about Rs 2,000 crore through stake sale
in Satluj Jal Vidyut Nigam and Engineers India. It had raised Rs 25,000 crore in

“Government is considering stake sale through public offerings in MMTC, Coal

India, Steel Authority of India (SAIL), Shipping Corporation of India (SCI), Power
Grid Corporation, Manganese Ore India (MOIL) and Hindustan Copper India,”
minister of state for finance Namo Narain Meena told Rajya Sabha in a written

The government filed the offer document for a 10% stake sale in Coal India on
Monday, and it has shortlisted merchant bankers to manage the MOIL offer,
which is expected to fetch about Rs 2,500 crore. The Coal India public offer,
tipped to be the largest offer from a public sector company, is expected by
October and could help the government raise over Rs 17,000 crore.

In MOIL, the Centre will offload 10%, while the state governments of
Maharashtra and Madhya Pradesh would dilute 5% each. The Centre holds
81.57% in the mini-ratna entity, while Maharashtra and Madhya Pradesh have
9.62% and 8.81% stake, respectively. However, the stake sales in SAIL and
MOIL may happen only in the next calendar.

The Shipping Corporation board will take up a proposal for issue of 10% fresh
equity in the proposed offer on Wednesday.

The government will disinvest 10% in the offer. In a move towards disinvestment,
the MMTC board recently approved a proposal for stock split and issue of bonus
shares. At Tuesday’s closing price of Rs 1,549.70 crore on the Bombay Stock
Exchange, a 10% stake sale in the company could raise nearly Rs 15,000 crore.

A change in the public holding norms, giving relaxation to public sector entities to
list on bourses with 10% float, is expected to prompt many PSUs to shed their
reservations and access markets.

Many public sector firms like CIL and Nalco as well as the department of
disinvestment had sought a review of the norms apprehending a negative impact
on the valuations.

According to the disinvestment policy approved by the Cabinet, all listed

profitable PSUs should have a public holding of at least 10% and all profitable
unlisted CPSUs should be listed.
BSNL IPO may happen in 2010-11: Disinvestment secy

The government has rapped state-owned Bharat Sanchar Nigam Ltd (BSNL) for poor
financial performance and made a case for disinvestment through an initial public offer

“I hope the BSNL IPO happens in the coming year (2010-11). I can’t say exactly when,
but I certainly hope that it does happen, because BSNL does need to open up to public
ownership, primarily with a view to strengthen its own management and its
accountability,” Disinvestment Secretary Sunil Mitra told a private news channel.

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The public sector unit (PSU) has been negotiating with the trade unions, which have been opposing any
disinvestment. The unions say disinvestment or listing would serve no interest of people. The government
had earlier proposed to divest 10 per cent stake.
“The company’s financials are doing pretty badly and it certainly shouldn’t be so because
telecom, as you know, is one of the sectors that you have to be competitive and they
(BSNL) have to pull up,” Mitra said. The government may announce a roadmap for
disinvestment in PSUs through IPOs and follow-on public offer (FPOs) by March this
year and BSNL could be one of the 60 PSUs identified by the government.

BSNL, which was eyeing a top slot in the mobile market at one point of time, is
struggling to retain its fifth position in the market. The company is also in the process of
adding to its Global System for Mobile Communications (GSM) capacity, at an
investment of over Rs 35,000 crore. It had floated the tender nearly 18 months ago. Being
a government-owned company, it has faced bureaucratic hurdles in placing orders with
the lowest bidders. Disinvestment and listing are expected to help the PSU take decisions
faster and compete with the private sector.

Despite equity support from the government, the financial mess at Air India is unlikely to abate soon, as the
cash-strapped carrier would not be able to bring in funds through disinvestment or an IPO for a period of at
least five more years.

This is because of two reasons: the Union Cabinet’s decision to list only profit-making public sector
enterprises (PSUs), and Air India being expected to suffer substantial losses for a period of at least two
more years.

When asked whether Air India’s divestment is possible under a policy announced on November 5, Civil
aviation minister Praful Patel on Saturday told FE, “Not at all. That is not on the cards.” “The Cabinet policy
on disinvestment is only for profit making CPSUs. Air India divestment is not possible in this framework,” he
said, after inaugurating India’s first aerospace special economic zone built in Belgaum by Karnataka-based
QuEST Global. The 300-acre SEZ, founded by Aravind Melligeri and Ajit Prabhu, involves an initial
investment of Rs. 150 crore.

Patel has so far maintained that the government will try to list Air India on the stock exchange in the ‘near
future’ but this is the first time he has ruled out any divestment. The minister however, said the government
has agreed to provide equity support of Rs. 800 crore to Air India in the next two months. The Rs. 800-crore
equity infusion requires a Cabinet clearance, and it is likely to come in two tranches of Rs. 400 crore each.

Disinvestment secretary Sunil Mitra on Friday ruled out any exception for
loss-making PSUs and said the government will stick to the Securities
and Exchange Board of India rules while divesting government stakes in
such companies.

Sebi rules state that a company going for an IPO should have a track
record of distributable profits for three out of preceding five years,
besides four other key conditions. However, an exception is allowed to a
company not satisfying any or all of the five conditions.

Such a company would have to go through a ‘mandatory book building

issue’, wherein qualified institutional investors (QIPs) need to subscribe
a minimum of 50% stake being offered for sale. According to a
disinvestment department official, the government will stick to the criteria
of ‘three-year-profit rule’ while divesting its stake in companies.

Since Air India has not made any profits in the last two years and its
losses are expected to continue for at least two more years; the three-
year-profit rule would mean it cannot be a disinvestment candidate for at
least five more years. Also, a lack of funds could potentially exacerbate
the problems at Air India, which is desperately seeking financial support from the government.
Air India suffered losses of Rs. 5548 crore in 2008-09, up from Rs. 2,400 crore in 2007-08. Officials expect
it to incur further losses of at least Rs. 5,000 crore in the current fiscal. The turnaround at Air India could
take another 4-5 years, according to a secretary-level official.

The government has agreed to an equity infusion of up to Rs. 5,000 crore into Air India over a period of
three years, subject to substantial cost cuts and revenue enhancement. Air India’s market share rose to
18.6% in October from 17.5% in September, according to data from the directorate-general of civil aviation.
It’s seat factor, which is the number of seats booked in proportion to total seats, has improved to 72.8% in
October from 67.5% in September.