The Telegraph
Since 1st March, 1999
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Freedom ticket for PSUs on the cards

New Delhi, Feb. 20: The Congress-led government is likely to clear a liberal and independent policy that will allow blue-chip state-run firms to tap the capital market through initial public offerings and to merge their subsidiaries or acquire other public sector units.

The government is likely to take advantage of some of these public issues and prune its holding in some of these companies marginally. Officials say it could earn between Rs 10,000 crore and Rs 15,000 crore through the stake dilution.

Navratna firms are likely to win the right to decide independently on acquisitions and mergers. Bowing to pressure from the Left, the government is likely to place a rider that unions must be consulted before an amalgamation proposal is pushed through by the board of a PSU.

Officials said Air-India, Indian Airlines, ONGC, Nalco, Bhel and Maruti would be among the state-run firms that will be coming out with public offers.

The government will take the opportunity to divest itself of small shareholdings in them. It is likely to divest 5 per cent in ONGC, which alone should fetch it Rs 7,000 crore.

Similarly, several key banks like Punjab National Bank, Oriental Bank of Commerce and Allahabad Bank are in the process of coming out with public issues. Canara Bank, Andhra Bank, Vijaya Bank, Syndicate Bank and Uco Bank are expected to tap the market after March. Three banks ' PNB, OBC, and BoB ' alone will raise about Rs 6,300 crore.

Public sector units need to tap the market to raise resources for expansion programmes to meet prudential norms and to retire old debts.

Officials said the liberal policy on PSU mergers and demergers was necessary to break the bureaucratic gridlock as the 'response time to changes in the market had to be kept very short.'

PSUs like SAIL and Nalco need to acquire upstream and downstream firms that add to their strength in a fast-expanding market. The public sector units as well as the state-owned companies in sectors like petroleum want to become global players and do not wish to be trammelled by cumbersome procedures.

The state-owned banks need to merge to create bigger monoliths ahead of the Indian financial market opening up to large transnational banks with their strong fiscal muscle.

The oil PSUs, too, want mega mergers to create global-sized petroleum firms, which cover the entire gamut of activities from exploration to refining to marketing.

However, the government, as the principal owner, would keep a close watch to regulate the process of mergers and acquisitions.

Similarly, it would ensure there was 'no overcrowding' of the market for fresh issues because of the offerings made by state run firms.

Such an occurrence would hit both the owner's share value as well as the mood on the bourses.

The government, on its part, is keen to tap this avenue as it could help it earn fresh revenue at a time when tax reforms may lead to a slowdown in revenue growth in the short term.

This is expected despite several attempts being made to deepen the tax base.

Public sector units' market capitalisation soared last year. Some 48 PSUs saw their market cap increase 71 per cent from Rs 3,52,202 crore in December 2003 to Rs 6,04,671 crore.

Despite the rush to issue fresh shares, the total new paper being issued accounts for just about 2 per cent of India Inc's market capitalisation.

Exposure to this kind of money is not considered too risky by foreign funds, especially as they soak up to 7 to 8 per cent of the total capitalisation in many markets by buying new issues.

Most state-run firm IPOs have a low price-earnings ratio of less than 10.

This will hurt the interest of FIIs, which are the biggest investors in the stock markets, and the retail investors.

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