Govt to avoid ETF, OFS to pro­tect stock value

Business Standard - - FRONT PAGE - ARINDAM MAJUMDER New Delhi, 16 Oc­to­ber

T he gov­ern­ment will fo­cus on cut­ting its stake in 21 listed firms and also list its com­pa­nies, but will wait for an ap­pro­pri­ate time for stock prices to im­prove.

How­ever, it does not plan to come up with more ex­change­traded funds (ETF) or of­fers for sale any­time soon for the same stocks as part of their di­vest­ment strat­egy, be­cause a mar­ket study has shown that ETFS re­duce val­ues of stocks and bring down the worth of ini­tial pub­lic of­fer­ings (IPOS).

“We will not do fur­ther tranches of two eq­uity re­lated of­fer­ings. That has been claimed to be as one of the rea­sons for the over­hang on stock prices. We will not be re­peat­edly com­ing to the mar­ket with the same stocks, and are go­ing to keep the in­ter­ests of long-term in­vestors in mind and avoid the price over­hang,” said Tuhin Kanta Pandey, sec­re­tary to the Depart­ment of In­vest­ment and Pub­lic As­set Man­age­ment (DIPAM).

ETFS have been a favoured strat­egy for the gov­ern­ment, with around 80 per cent of last fis­cal year ’s sale pro­ceeds com

ing from such trans­ac­tions.

Even in FY21, the gov­ern­ment raised ~5,695.63 crore through of­fers for sale i n Hin­dus­tan Aero­nau­tics and Bharat Dy­nam­ics.

Pandey is count­ing on par­ing gov­ern­ment stakes i n listed en­ti­ties. The gov­ern­ment will cut its stakes in 21 listed public­sec­tor un­der­tak­ings (P SUS) to meet the 25 per cent pub­lic share­hold­ing norm, man­dated by the Se­cu­ri­ties and Ex­change Board of In­dia (SEBI).

The gov­ern­ment had a ~2.1tril­lion dis­in­vest­ment target for

the cur­rent fis­cal year. This hinged pri­mar­ily on strate­gic sales of mar­quee as­sets like Air In­dia and Bharat Petroleum Cor­po­ra­tion Ltd (BPCL), which have been se­verely hit due to the pan­demic.

Both the avi­a­tion and oil in­dus­tries are un­der stress be­cause global de­mand for air travel and oil has re­duced.

A por­tion of the dis­in­vest­ment would come from stake sales in pub­lic-sec­tor banks and the IP O of Life In­sur­ance Cor­po­ra­tion (LIC).

A top fi­nance min­istry of­fi­cial said the gov­ern­ment was plan­ning to go ahead with the stake sale of IDBI Bank this year, while the IPO for LIC will be planned at an “ap­pro­pri­ate time”, look­ing at mar­ket con­di­tions. The gov­ern­ment may not im­me­di­ately di­vest stakes in state-owned banks ow­ing to poor mar­ket val­u­a­tion. It may wait for at least a year to do so.

So far this year the gov­ern­ment raised ~5,695.63 crore through of­fers for sale in Hin­dus­tan Aero­nau­tics and Bharat Dy­nam­ics. Last week, in the gov­ern­ment’s first IPO of FY21, Mazagon Dock Ship­builders was sub­scribed over 157 times. The gov­ern­ment sold 15.17 per cent to raise ~444 crore.

Pandey, how­ever, said BPCL would wit­ness an in­vestor in­ter­est and did not see any need to ex­tend the dead­line for ini­tial bids, which is Novem­ber 16.

For Air In­dia, the Cen­tre is likely to amend rules to make it eas­ier for prospec­tive suit­ors so that they can bid on the en­ter­prise value, which is an equiv­a­lent of the com­bined debt plus eq­uity value.

DIPAM is en­cour­aged by the re­sponse to the IPO of Maza­gaon Dock. Mazagon Dock was listed on Oc­to­ber 12 and had a ro­bust open­ing day. The stock closed ~ 171.95, an 18.5 per cent pre­mium to its is­sue price of ~145. The Cen­tre has a pipe­line of IPOS for Rail­tel, In­dian Rail­way Fi­nance Cor­po­ra­tion, and Telecom­mu­ni­ca­tions Con­sul­tants In­dia. Pandey said DIPAM was not per­turbed about miss­ing the dis­in­vest­ment target.

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