The Telegraph
Since 1st March, 1999
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Fresh move to put selloff on fast track

New Delhi, Sept. 25: The Congress government will take another crack at PSU divestments that are stalled owing to Left opposition to selloffs.

The plan is to prepare fresh proposals for profitable non-navratnas with high valuations.

Discussions among ministries are being initiated, and the Left will be consulted on specific cases.

“Among other things we will be taking up the case of profitable PSUs which need to raise capital for various expansion projects,” senior government officials said.

“We want these to go through and we will also see if the government can piggy-back on some of them and divest small stakes in the market through their public offers,” they added.

However, to push the proposals, the coalition government would need the backing of its allies. Prime Minister Manmohan Singh had indicated on Sunday that he would discuss the issue of stake sale in PSUs with coalition partners before proceeding further. “We will talk to our colleagues before we move forward in that direction (divestment),” he told a joint press conference with Congress chief Sonia Gandhi at the end of a party chief ministers’ conclave at Nainital in Uttaranchal.

The last round of the divestment exercise was thwarted by the opposition from the DMK and the Left.

The PSUs in the queue for IPOs are Power Finance Corporation, Air-India and Indian Airlines (an offer is expected after their scheduled merger) and Rural Electrification Corporation.

“Of course the entire process can kick off if the political leadership agrees to it,” the officials said.

PSU banks, however, will proceed with their IPOs as the banks need to strengthen their capital base to comply with the capital adequacy norms fixed by Basel-II, an international banking convention to which India is a signatory.

If the government allows the public issues of non-bank PSUs, these entities could mop up about Rs 5,000 crore to Rs 6,000 crore in the next 12 months.

IPOs of PSUs have a price-earnings ratio of less than 10, which is considered conservative by global standards where P-E ratios of up to 17 are allowed.

FIIs and the retail investors are likely to be enticed by such numbers. They will also be buoyed by the PSUs being blue-chips.

North Block is banking on the middle class retail investors to become stake-holders in PSUs as it will be politically very difficult for any party to stop the IPOs. “The public offerings would create their own electorate as UTI had done some years back,” the officials said.

They said the government was also keen on suggestions from the PSUs to enhance their market value, such as stock splits, merger of subsidiaries into a PSU and sell-off of non-core subsidiaries to PSUs that are in the same field.

Though there are no guidelines, the issue has still been discussed in the inter-ministry meetings. The officials said the finance ministry wanted the ministries to take up the issue with the concerned PSUs.

Earlier this month, finance minister P Chidambaram had regretted that the purpose of disinvestment was “misunderstood” and said it was now up to the Prime Minister to take a decision on the issue.

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