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Maruti rump stake sale in fast lane

New Delhi, July 24: The cabinet committee on economic affairs is likely to take up a proposal in the next 10 days to sell a large chunk of the government’s residual stake in Maruti Udyog to financial institutions (FIs) .

The sale, many in the government believe, will serve two purposes. It will show investors that the government has not halted the selloff process completely. At the same time, it is unlikely to invite the wrath of the Left parties or other allies of the ruling Congress party opposed to divestment.

The government, which currently owns over 18 per cent in Maruti, wants to divest about 8 per cent of its holdings to FIs. It had sold off 25 per cent through a market offering two years ago.

Officials said the ministry of heavy industries had initially suggested selling the shares to FIs at a negotiated price. However, it later reframed its cabinet note to sell them at over Rs 1,100 crore.

The government wants to retain the remaining 10 per cent stake for the time being as it is keen to keep a nominee on the Maruti board.

The government stake was sold in 2003 at Rs 125 a share. The stock is now traded on bourses at Rs 450-460; its 52-week high is Rs 504.

Opposition to the plan is likely to be muted as it is a rump stake sale and the proceeds will be used in social sector projects after being parked in the newly set-up divestment fund.

The Maruti stake sale will be the first piece of divestment by the ruling UPA government. It could not get the Left’s support on selloff in Bharat Heavy Electricals.

The cabinet nod will also clear the way for a divestment white paper, which is likely to be presented in Parliament in this session. The government is likely to reiterate its right to sell equity through public offerings in profit-making PSUs. However, there will be a condition that future offerings should be planned in a manner that will enable the government to retain a comfortable majority even after the sale. Left leaders, however, are likely to insist that this policy leave out navratnas from the stake sale plans.

The paper that out of some 100 profitable PSUs, only 28 are currently listed. Listing on stock exchanges provides additional avenues to PSUs for raising capital and exposes them to market discipline.

Finance minister P. Chidambaram could argue that it would be in public interest of all large profitable state-run firms to have their shares traded, at least on local bourses.

Chidambaram’s policy prescription harps on equity sale through market offerings as an ideal option.

“Public issues through the book-building method is transparent. The listing of a company increases oversight of regulatory agencies and makes management more responsive,” states the white paper on selloff.

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