Special funds may help Centre meet PSUs’ holding cap

Sebi, govt in talks to resolve issues before August deadline

The government and the Securities and Exchange Board of India (Sebi) are looking at ways to work around the challenges the Centre faces in meeting the August 2017 deadline to cap its stake in public sector companies.

While senior government sources said the finance ministry’s Department of Investment and Public Asset Management (Dipam) has not asked Sebi to extend the deadline, various methods are being explored to ensure that stakes in about 20 public sector undertakings (PSUs), in which the Centre holds more than 75 per cent, are cut.

These could include reviving special national investment funds (SNIFs), which the Centre had used for certain loss-making PSUs in 2013. Under this route, the government parks the PSU stakes it would eventually require to divest into an SNIF run by independent market experts. That stake is considered divested by Sebi. The SNIF could later sell the PSU stakes.

“There have been discussions between the Sebi and DIPAM on the August deadline and these talks will continue. Various options are being looked at, including SNIF,” said a senior government official. “The government has not asked the Sebi to extend the deadline for compulsory maximum 75 per cent shareholding in PSUs.”

Some PSUs in which the Centre still holds more than 75 per cent are Coal India (79.8 per cent), NLC India Ltd (89.3 per cent), SJVN (90 per cent), Central Bank of India (81.3 per cent), State Trading Corp (90 per cent), Andrew Yule (89.3 per cent) and ITI (94.9 per cent).

The Narendra Modi government might look to completely exit loss-making PSUs as part of its strategic-sale road map. But that certainly won’t happen before August.

What adds to the Centre’s burden is that it is planning to take a number of companies public this year and would hence have to ensure minimum 25 per cent public shareholding in these as well. Dipam is working on listing rail PSUs such as IRCTC, IRCON and IRFC, as well as the five insurance companies — New India Assurance, United India Insurance, Oriental Insurance, National Insurance and General Insurance Corporation of India.

The total disinvestment target for 2017-18 is ~72,500 crore, the highest ever. Of this, ~46,500 crore is expected from minority stake sales, buybacks, employee offersfor-sale, initial public offerings and through the CPSE exchange-traded fund route. About ~15,000 crore is budgeted to come from strategic sale in PSUs. The remaining ~11,000 crore is expected to come from insurance IPOs.