FinMin may not issue fresh tranches for two ETFs

NEW DELHI: After raising ₹16,500 crore in the sixth edition of the central public sector enterprises exchange-traded fund (CPSE ETF) on January 31, it may be time for a pause.

The finance ministry may not issue fresh tranches of its two ETFs in near future to prevent its stake in NTPC Ltd, Power Grid Corp. of India Ltd, and Power Finance Corp. Ltd (PFC) falling below 51%, a ministry official said. “Though technically, these three stocks can be taken out of the ETFs and replaced with new ones, at present, good CPSE stocks are hard to find,” the official said on the condition of anonymity.

Mint first reported on December 30 that a reduction of government stake below 51% in these three companies may breach their agreements with overseas bond holders which requires them to be majority-owned by the government.

Companies where the government owns more than 50% enjoy the status of quasi-sovereign borrowers, and the implicit government guarantee reduces their borrowing costs. If the government stake falls below 50%, investors will seek higher yields for the additional risks they take, driving up the cost of selling bonds for these companies.

The cabinet committee on economic affairs on November 20 decided to reduce government stake in select CPSEs below 51% on a case-to-case basis, but the power ministry objected to the proposal. The official cited above said the finance ministry agreed to the objection after doing a costbenefit analysis.

“The amount of money that we will raise, say if we go 5% below 51%, will be less than the money we have to spend to convince bond holders and pay the consent fees. The gains are not commensurate,” the official added.

The department of investment and public asset management on January 31 sold the sixth tranche of CPSE ETF, raising ₹16,500 crore. With 12 companies in the kitty, more than 40% of the ETF is dominated by Power Grid (20.59%) and NTPC (19.66%). In the Bharat-22 ETF, the three power ETFs together have close to 16% weightage. “We have almost hit the 51% cap in NTPC and Power Grid, while we have a 3-4% window in PFC which can be sold separately through an offer for sale,” the official said.