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Government holds majority stake
An enterprise where there is no private ownership and its activities are not mainly confined to the maximization of profits and private interests of the enterprise, but it is influenced by social interest.
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Rapid economic growth Return on investment Redistribution of income Employment opportunities Balanced development Small-scale and ancillary industries Promote import substitutions
Problem related to planning and construction of projects Ineffective Management . personnel and management Lack of autonomy .` ` ` ` ` Price policy Under utilization of capacity Project Planning .Problems of labour.
disinvestment is a process of Privatization . industries or countries for reasons of political or social policy. All in all.` ` ` Sale of equity and bond capital invested by the government Reduction of investment in firms.
competition and market discipline To encourage wider share of ownership To de-politicise essential services .` ` ` ` ` ` ` ` ` To raise resources To reducing public debt To increasing efficiency Modernization & upgradation To reduce the financial burden on government To improve public finances To introduce.
Total Investment (US$ million) Total number PSUs not submitted accounts Non functioning PSU Loss making PSUs Profit making PSUs 24533 946 100 241 551 54 .
6 million jobs added in the organized sector 1 million. As on 31.00 Profit & Loss A/C of 21 PSUs showed accumulated loss of 13959. the government has been sanctioning restructuring packages from time to time.57 crores. or two thirds. were added in the private sector during the period 1991 to 2000.3. This indicates that the private sector has become the major source for incremental employment in the organized sector of the economy over the last decade . Employee issues: ` ` Of the 1.Industrial Sickness in PSUs: ` ` To save the PSUs from sickness.
Arun Shourie The approach has been far more strategic and planned thereon .` ` ` ` ` Introduced in 1990 Initially looked as fund raising for fulfilling the financial needs of the economy Intention to convert the non performing PSU into profit making one In 1999 the Vajpayee Government for the First time set a separate Disinvestment Ministry headed by Mr.
` Set up in 1999 Assisted by Advisors Business Allocated to Ministry of Disinvestment All matters related to disinvestment Decisions on the recommendations of the Disinvestment Commission Implementation of disinvestment decisions ` ` .
1. Interim Budget 1991-92 Disinvestment Up to 20% of the Equity in selected PSEs undertaking was in favour of the Mutual Fund. Mutual Fund and Workers in these Firms . Budget 1992-93 ` Cap of 20% for disinvestment was reinstated and eligible investor modified to Institutional Investor. Financial and Institutional Investor in ` 2. Industrial Policy Statement of 24th July 1991 ` Government didn¶t place restriction in class of investor nor the equity share capital 3.
The Common Minimum Programme 1996 ` ` ` Examine the public sector non-core strategic areas. 58 PSEs were shifted from Public offering to Strategic/ Trade sales with transfer of management . ` ` Rangarajan Committee April 1993 It recommended 49% of PSEs Equity to be disinvested for industries explicitly reserved for the public sector Holding of 51% was recommended for only six industries. 5. Setting up of Disinvestment Commission Transparency 6.4. Disinvestment Commission Recommendations 1999 ` ` Disinvestment Commission was set up in 1996 August 1999.
2002 ` Credit receipt of 12000 crore from disinvestment next year. 9. . Percentage of disinvestment change in government stake going down to less 51% or up to 26% would be case to case.7. Budget 2001 . 8. Strategic & Non-strategic Classification March 1999 ` ` 3 industries were strategic industries and rest all the industries were non strategic. Budget 2000 .2001 ` First time government was ready to reduce the stake below 26% in a Non Strategic PSEs.
Suo ± Moto Statement of Shri Arun Shourie .10.2002 ` ` ` Specific aim of Disinvestment Policy Disinvestment does not result in alienation of national assets Disinvestment Proceeds Fund .
as a whole. never earned post tax profits that exceeded 5% of total sales or 6% of capital employed.which is at least 3% points below the interest paid by the Government on its borrowings ` Recurring Budgetary support to PSEs: ` Despite huge investment in the public sector. has been quite poor. The PSE Survey shows PSEs. the Government is required to provide more funds every year that go into maintaining of the unviable / weak PSEs . at least for the last two decades.Profitability: ` The return on investments in PSEs.
` ` ` ` Bring down the Government equity to 26% or lower Re-structure the potential and viable PSUs Close down PSUs that cannot be revived To protect the interest of the workers .
sales as block Competitive market.retain 26% Competitive market.retain 51% initially Monopoly market. efficient PSUs and low social obligations .down to 26% Competitive market. inefficient PSUs and low social obligations .management contracts Monopoly market.` ` ` ` ` ` ` ` Monopoly market. inefficient PSUs and high social obligations . efficient PSUs and low social obligations .joint ventures Competitive market. sales as block or close down . efficient PSUs and high social obligations .down to 0%.down to 0%. inefficient PSUs and high social obligations . efficient PSUs and high social obligation sectors .down to 0% Monopoly market. inefficient PSUs and low social obligations .
"The policy of the government is to develop people-ownership of PSUs while ensuring that government equity does not fall below 51 per cent and government retains management control of the company. . Salient Features ` ` PSUs which have received 'Navratna' status will not be considered for disinvestment Other PSUs to be considered on case to case basis." the minister said.
bid evaluation criteria and bidding process Preparation and circulation of information memorandum to pre-qualified buyers Due diligence and preparation of transaction documents Valuation of Assets/shares Receiving of bids Evaluation of bids Signing of Sale Agreement .` Methodology: Structuring the transaction in terms of: Extent of stake to be divested Extent of management rights Decisions on pre qualification criteria.
to be resolved . shareholding Low cost and less regulation Disadvantages Time consuming Issues relating to management. land and labour etc. Advantages Maximises price because of transfer of management rights Brings technical / marketing / financial / managerial expertise of the buyer to the company Increased value of residual Govt.
` Offer For Sale To Public Through Book Building Suitability: x Companies for which institutional interest is expected to be substantial x Profit making companies with good intrinsic value and future prospects x Companies not in need of significant technical. marketing inputs . managerial.
` Offer For Sale To Public Through Book Building Methodology: Offer for sale x Issue of Equity Shares to the public at large x Number of securities to be pre-determined and disclosed x Price discovery through bidding by interested investors x Issue amount is thus automatically obtained (No. of securities multiplied by price) x Issue underwritten by the Syndicate Members (may or may not be) x Offer made through an Offer Document .
5% x Regulatory compliances ± SEBI Regulations & Stock Exchange .with cost of 2 .` Offer For Sale To Public Through Book Building Advantages x Optimises price x Ensures broad based shareholding x Sets valuation benchmarks for further fund raising / offer for sale for IPOs x Relatively quick method .Transparent method Disadvantages x Expensive .
Through brokers To interested buyers . managerial. marketing inputs etc. Methodology: sale through market operations x x x x A secondary market sale of Equity Shares.institutional and retail At trading market prices .` Secondary Market Operation Suitability: x Companies which have a sizeable floating stock with good intrinsic value and good future prospects x Companies not in need of significant technical.
only brokerage to be paid Disadvantages x x x x x x Unsuitable for Companies with low floating stock Interest may be low Price dependent on day to day market conditions Amount of proceeds uncertain .Possibility of price rigging Highly dependent on the day-to-day demand for the shares Method may not be considered transparent .` Secondary Market Operation Advantages x Low costs .
` International Offering (ADR and GDR) Suitability x Companies which have stocks listed in the international markets or companies with actively traded stock in domestic markets x Companies with good intrinsic value. good future prospects and of international repute .
` International Offering (ADR and GDR) Methodology: offer for sale in the international markets x An offer to international investors through issue of Depository Receipts. which represent underlying shares (ADRs in the USA market and GDRs in markets other than the USA) x Recasting of accounts as per US GAAP for issue of ADRs and consolidation of accounts for issue of GDRs x Preparation of red herring (Offer Document) and road shows x Price discovery through bidding and allocations made at cut-off price (Dutch Auction) or at bid price (French Auction) x The issue is usually fully underwritten x Offer through an offering document .
` International Offering (ADR and GDR) Advantages x Access to deeper international markets and capital. x Creates price tension between the overseas and home market x Enhances visibility Disadvantages x Time consuming process x Stringent regulatory requirements x Accounting norms and disclosures and regular reporting to SEC in case of ADRs x High cost about 4-5% for ADRs and about 3% for GDRs . sometimes at better price.
` Private Placement of Equity Suitability x Unlisted companies x Listed companies with low floating stock and low volumes x Companies with good intrinsic value and good future prospects .
` Private Placement of Equity Methodology: placement of equity x To a set of institutional investors x At a negotiated price arrived at through valuation or price discovery through book building x With issues of management rights and exit option resolved x Through an information memorandum circulated among institutional investors and due-diligence x In case of listed companies as placement of less than 15% equity to investors does not trigger Take-over code (as per SEBI guidelines) .
except in case of foreign investment x Low transaction cost Disadvantages x Does not ensure widespread shareholding x May not be considered transparent .` Private Placement of Equity Advantages x Less time consuming x No regulatory compliance requirements.
` Auction Suitability x Companies with good intrinsic value x Unlisted companies x Listed companies with low floating stock .
placement of less than 15% equity to each investor to avoid trigger of Take-over code (or as per SEBI guidelines) .` Auction Methodology: Auction through the Dutch / French Auction x To a set of institutional investors x At a price discovered through the bidding process x For a pre-determined number of Equity Shares x Allocations made x At a cut-off price to all investors above the cut-off price in case of Dutch Auction x At the bid price in case of French Auction x Marketing through Analysts' meet and one-on-one discussions x In case of listed companies.
` Auction Advantages x Optimises receipts to the GoI (amount higher in case of French Auction) x Transparent mechanism x Less time consuming with no regulatory compliance requirements x Low transaction cost Disadvantages x Does not ensure broad based shareholding .
` ` ` ` ` Trade Sale Asset Sale and Winding up Management/Employees Buyout (M/EBO) Cross Sale Sale through Demerger/Spinning off .
The Government is shedding its social responsibility. .` ` ` ` It can be argued that a lot of PSU¶s on list for Disinvestment are indeed doing well. Short Term Policy of fund raising at the cost of continuous revenue income. Disinvestment increases the dependence on Private Sector.
Air India BSES to Reliance Energy .