Govt to divest 12.72% in RITES next month

Plans to mop up ~4-4.5 billion, will announce price band in a week

The government is planning to divest at least a 12.72 per cent stake in railway subsidiary RITES in a month's time.

According to sources close to the development, the plan is to raise ~4-4.5 billion through the listing of RITES.

"The price band is likely to be decided in a week’s time by the Department of Investment and Public Asset Management (Dipam). Out of 12.72 per cent stake to be sold, 0.72 per cent will be available for employees," said an official.

However, the proposed listing of another railway arm Indian Railway Finance Corporation (IRFC) is likely to be delayed further over lack of clarity on the exemption of a deferred tax liability.

In February, the ministry of corporate affairs had exempted IRFC from an accumulated deferred tax liability of ~63.92 billion, which was supposed to be added to the company’s net worth. IRFC faced a deferred tax liability as its depreciation was greater than profit. The company did not pay tax under normal assessment and was subject to a minimum alternate tax (MAT) of 21 per cent.

Besides, it had to make a provision for the deferred tax liability at 35 per cent. Thus, the company’s books were bearing a total tax provision of 56 per cent. After the exemption, this was supposed to come down to 21 per cent, leading to substantial gains in profit after tax (PAT), earnings per share and book value per share. “There is some lack of clarity on the issue, which may delay the IRFC stake sale,” he said.

The government had in the Union Budget set a disinvestment target of ~800 billion for 2018-19. The total disinvestment proceeds for 2017-18 was ~1 trillion, higher than the target. Dipam has invited bids for engaging advertising agency for divestment of up to a 25 per cent stake in Rail Vikas Nigam Ltd (RVNL).

RITES, which posted a turnover of ~15.09 billion in 2016-17, is strategically important to India because it has operations in 55 countries across the world.

IRFC is one of the most anticipated stake sales among the railway subsidiaries. By the end of March 2017, it had assets worth ~1.52 trillion, including 8,998 locomotives, 47,825 passenger coaches, and 2,14,456 wagons that it has funded. It has also provided ~36.12 billion to other railway entities (RVNL and RailTel Corporation) and capacity enhancement works of ~20.78 billion.