Needed: A pipeline of PSU offers to cool abnormal market rally

The government will have to be unusually quick to exploit the current window of opportunity by divesting stakes in fundamentally strong public sector firms and channel money into large infrastructure and development projects

With the markets on fire, many investors seem to think that the government must grab this opportunity to absorb the gush of foreign investment coming into India and overheating the secondary markets. There is too much money chasing too few stocks and the market desperately needs a slew of solid companies to use this opportunity to raise finance.

Otherwise, we are bound to see a rush of opportunistic promoters with dodgy governance, mopping up the money through pumped-up valuations for companies with uncertain long prospects. More importantly, the money raised through disinvestment can be used to bridge the fiscal deficit, instead of the finance ministry's current strategy of getting its revenue agencies to harass genuine business to pay more.

On the other hand, with all the negatives of being dependent on the whims of politicians, public sector undertakings (PSUs), especially the ones that have been lined up for disinvestment, have rock solid businesses. We spoke to Disinvestment Secretary Sumit Bose on whether there was any possibility of increasing the pace of disinvestment. He said, "We are doing much faster this time. Until now we never had a pipeline. Earlier when we divested NMDC (National Minerals Development Corporation), NTPC (National Thermal Power Corporation) and REC (Rural Electrification Corporation), we had to get cabinet approval first, after which we started the process of appointing investment bankers, other intermediaries, starting the due diligence process and then filing with SEBI (Securities & Exchange Board of India). A few months ago, we have got fast-track approval from the cabinet".

This means that as soon as the appropriate administrative ministry and the finance ministry agree that a particular company should come up for disinvestment, the IPO processes such as appointment of intermediaries is started without waiting for the formal approval from the Cabinet Committee. He also says, the experience of handling past issues has helped create a pipeline since the ministry is "not reinventing the wheel each time".

According to Mr Bose, the pipeline is as follows: Once the Coal India offering is complete, Power Gird Corporation is scheduled to hit the market on the Monday just after Diwali; next in line is Manganese Ore India Limited (MOIL) which will be followed by Shipping Corporation of India (SCI) towards the end of November. In early December we are looking at Hindustan Copper Limited (HCL) and then in January, at SAIL (Steel Authority of India Limited), Indian Oil Corporation and Oil and Natural Gas Corporation.

On whether the government is planning to revise the target of Rs40,000 crore that it hopes to raise before 31st March, Mr Bose says no, even though the secondary market outlook as well as the extent of foreign funds coming into India have accelerated dramatically since the target was set many months ago.

In fact, most market intermediaries as well as big investors admit to being seriously worried about the rising indices and ridiculously high valuations. The only way to cool excessively high prices in the secondary market is to infuse good quality stock into the primary market. For that to happen, policymakers in the government will have to be unusually quick to exploit the current window of opportunity and channel money into large infrastructure and development projects.
But even the current focus and speed is fairly unusual for the government of India and the Disinvestment Minister is able to work with PSUs to complete the filing processes within a month after all approvals are in. So far, the draft prospectuses of Power Grid, HCL and MOIL are already filed with SEBI for approval, the due diligence for SAIL has begun and while the rest are in the pipeline.

With regard to market outlook, Mr Bose told Moneylife that US investors are not too worried about Indian markets being overvalued or overheated right now. This is what he has gathered from his interactions with top institutional investors in the US, whom he had met individually. However, given the current disclosure norms, there is not much clarity as to whether the sudden inflow is short-term in nature. Money has been gushing into India Exchange Traded Funds that in turn invest in India index stocks. ETFs are heavily traded products and are essentially short term in nature.




6 years ago

It will cool the present and kill the future.Why our govt is so bankrupt that it is selling shares of Public enterprises only to reduce fiscal deficit without aiding to enterprise concerned though the money mopped up is due to brand name of that enterprise. For example Rs 15000 crore fetched by GOI will not help CIL though these are being mopped up taking help of brand name of our King Coal. It will even harm enterprise concerned as future revenue generation potential of the same will even reduce. So instead of these mindless disinvestment procedures GOI should adopt some other means for revenue generation to finance its fiscal deficits arising due to wrong subsidies in many cases. For example LPG is subsidized by Rs 20000 crore per year subsidy to rich lpg users though free solar thermal and cheaper induction energy are available as substitute of LPG.

Shadi Katyal

6 years ago

Who would like to invest in such sinkholes of investments.PSU like STC,SAIL,MMTC have left a very black mark in the world markets as they always want their share and thus are not
True it is beneficial for the employees due to permanent tenure but as an investor why one would bother to get involved with unions,unproductive and indiscipline bureaucrats?
Can anyone solve the mystery of Ashoka Hotel of Delhi, where the ministers have parties without payiong bills and employees have their own way to manage their own loot.
Compared to any private enterprise these are all failures as have no competition.
Air India vs Jet Airways is a good
example beside many others.
I recall some PSU hotel in Orissa could not get a client when was owned by PSU but now making profit and ther are many examples.
STC sales and purchases are not accountable and thus we read horror stories of buying 3rd quality goods at above market prices.
It is gift by Nehru and that might be the reason GOI unwilling to shut them for good.



In Reply to Shadi Katyal 6 years ago

Its wrong to say that PSUs are gift by Nehru. Decisions taken in the 1950s cannot be judged by today's yardsticks. Nehru was a visionary who also thought about BARC, IITs, ISRO, Institute of Science, etc. in a different era. The nation is grateful to this statesman.


6 years ago

PSUs are sheer example of monopoly of state and lack of competetiveness -They are making profits just because their monopoly is guaranted by GOI-whenver competetion comes-they are unable to meet even their own expanses-and in most of service related sectors like BSNL mobile-no one is to listen to customers-becasue their salaries and job is guaranteed-i think they have been given undue importance in our socialistic culture and they should be put in competetion with private sector without any subsidies or favour from govt-then only their equity should be offered to public-


6 years ago



Utsal Karani

6 years ago

Excellent article. I completely agree with the logic.


6 years ago

Lot of money is coming to indian markets and valuations going high-that may be right but it does not prove the point that people should invest in all these WHITE ELEPHANTS which are symbols of corruption and RED TAPISM with only intention of GHAR BHARO by most of beurocrats-there are still many small and mid caps stocks which are at low valuations and giving best returns in terms of profit-so investment should be done in such stocks rather then these corrupt PSUs where coal mafia and ore mafia are real owners-

Shadi Katyal

6 years ago

One should ask oneself simple question that who will like to pour their investment in such PSU which are nothing but den of corruption,lack of any productivity and union workers who will strike on drop of pin.
There is lot which doesnot meet the investment criteria and that is why even the smaller nations like Thailand, Malaysia and Singapore are able to attar cat investments.
Has anyone in GOI ever looked the major shocking drawbacks due to RED TAPE and Bureaucracy.
World papers might give boost to India for becoming an industrial power but where is the trained and disciplined labour ? Where are the ethics of working?Why would anyone invest in such loosing pits?


6 years ago

baapre what logic !!!

AP cabinet approves special ordinance to rein in MFIs

Hyderabad: Seeking to rein in microfinance institutions (MFIs), whose coercive functioning led to alleged suicides of a number of poor and rural people, the Andhra Pradesh government today approved a special ordinance for the purpose and sent it for the governor's assent, reports PTI.

The state cabinet met here specially to approve the ordinance in view of the massive pubic outcry over the harassment of the poor by the MFIs.

State rural development minister V Vasanth Kumar, talking to reporters after the cabinet meeting, declined to divulge the contents of the ordinance.

"I cannot reveal the contents of the ordinance before the governor gives his assent. Wait for 24-48 hours," he said.

Chief minister K Rosaiah held a video conference with the district collectors and superintendents of police (SPs) prior to the cabinet meeting and directed them to act tough on erring MFIs to prevent any harassment of those who have taken loan from them.

Mr Rosaiah, who held meeting with state level bankers yesterday to discuss ways to help the poor loanees, told them to disburse loans expeditiously as per their targets.

During the video conference, he told officials to hold district level bankers meetings to see that loans are given at reasonable rate of interest to the needy.

Many rural borrowers allegedly committed suicide in Andhra Pradesh during the last few months following their inability to pay back loans.

Mr Vasanth Kumar said the victims of MFIs would be provided a Total Financial Inclusion (TFI) package under which a debt swapping module would be worked out. The debt swapping meant conversion of higher rate of interest on loans to a lower rate.


SpiceJet's new promoters to launch open offer on 18th October

New Delhi: SpiceJet's new promoters SunTV chief Kalanithi Maran and his company KAL Airways will launch an open offer to acquire an additional 20% stake in the low-cost carrier on 18th October, reports PTI quoting Enam Securities, the manager of the offer.

"The open offer will open on 18th October and will close on 6 November 2010, as per the revised schedule," Enam Securities, which is managing the offer on behalf of Maran and KAL Airways, said in a filing to the Bombay Stock Exchange (BSE).

In June, the Chennai-based industrialist had clinched a deal to acquire a 37.7% stake in the low-cost carrier for Rs739.57 crore from American investor Wilbur Ross, his investment companies and the Kansagara family-promoted Royal Holding Services Ltd.

Shareholders will be offered Rs57.76 for every share they hold in SpiceJet, translating into a 3% premium over the closing price of Rs56.05 on 11 June 2010.

This would involve an outgo of around Rs480 crore, taking the overall deal size to Rs1,220 crore as Maran and his firm KAL Airways had clinched the deal to pick up a 37.73% stake in SpiceJet at Rs47.25 apiece.

As per market regulator Securities and Exchange Board of India’s (SEBI) takeover norms, the new promoters of a company are required to make an open offer in case their stake crosses the threshold limit of 15%.

Enam's filing further said the Letter Offer to the equity shareholders of SpiceJet is in continuation and should be read in conjunction with the public announcement of 14 June 2010, pursuant to SEBI regulations.

It had said on 14th June that it will acquire as many as 8.30 crore shares of Rs10 face value at a price of Rs57.76 per fully paid-up equity share through the open offer, representing 20% of the equity in the company.

On Monday, Mr Maran had increased his direct stake in the airline to 25.12% by acquiring a 7.42% additional stake through off-market transactions for Rs135 crore.

The new promoters have also appointed Neil Mills, the former chief financial officer of Dubai-government controlled FlyDubai as the new chief executive officer of SpiceJet as part of its management revamp.


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