New Delhi, Oct. 7: The department of disinvestment will soon bring a note before the Cabinet Committee on Economic Affairs seeking to launch an exchange-traded fund for public sector units. The fund will give the government an additional route to sell shares of state-run companies when they come up for divestment, besides being normally traded on the bourses.
The proposal made by the Kelkar committee has been accepted by the finance ministry. An official note said “an in-principle approval from the finance minister has been obtained and the process of appointment of an adviser is being initiated” — even before the matter is taken up by the CCEA.
The ETF will be a basket of shares of listed PSUs, and investment in it is expected to minimise the risk for investors who wish to buy a PSU stock. It will also be easier for the government to sell new offerings by getting the fund to buy some part of the stocks on offer.
According to the official note, “It will be a transparent monetisation vehicle which can be used on an ongoing basis; The ETF will help minimise market disruptions usually seen in public offerings of listed PSUs; being a portfolio of PSU stocks, this will lead to risk diversification (with) more retail participation, including (from) risk averse investors; in the perspective of success of ETFs globally, creation and launch of a PSU ETF will boost the ETF product in the country.”
Last month, the government cleared divestments in four public sector entities — NMDC, MMTC, Oil India and Hindustan Copper — which are estimated to fetch Rs 15,000 crore to the exchequer. If the ETF is created, part of the offering will be mopped up by the fund.
Part of the fund will comprise existing PSU stocks such as Indian Oil, SAIL, BPCL and NTPC to make the fund more attractive for investors willing to put their money in fresh offerings.
The Kelkar committee had in its report said, “Initially, the government may like to consider the option of creating a basket with securities having a good financial track record. This route may be attractive for retail investors and may be made available through multiple tranches reducing the risk of fluctuation of prices and also the impact cost for the government.” Shares of around 50 PSUs are listed on the stock markets.
However, the finance ministry is yet to decide on the amount of shares of the PSUs that will be allotted to the proposed ETF.
The ministry, through a notice last month, said proposals were invited from global merchant bankers, investment bankers, consulting firms and asset management companies, who have the experience in advising or managing an ETF.
“The Government of India intends to create and launch a CPSE (central public sector enterprise) ETF,” it said. The last date for submitting proposal for setting up the fund is October 8, it added.
After appointing an adviser, the government will name an asset manager to manage the fund on behalf of the government.
The ETF market has the potential to touch around Rs 26,000 crore, officials in the disinvestment ministry said.
Last fiscal, volatile market conditions forced the government to postpone selloffs in some PSUs. It could raise only Rs 14,000 crore in 2011-12 against a target of Rs 40,000 crore.