Enthused by the recent successes on the disinvestment front, the government has announced its intentions to market its equity in some key Public Sector Enterprises through public offerings. The change of stance comes after nearly three years as government made a conscious effort to go for divestment only through strategic route on the ground that this was the best way for getting maximum value for its equity. The new strategy of combining strategic sale and public offering of equity in companies where government has and may continue majority stake is aimed cashing in on the buoyancy in the PSE stocks. It is not something new. Indeed, a similar concept was advocated some time back by the Standing Conference of Public Enterprises (SCOPE).

Disinvestments in the country has always been a debatable issue though some consensus appears to be forging at the political level on the very concept. Yet the differences of opinion surface time and again on modalities. The latest move for retail marketing of equity has to be seen in this context.The concept of broad basing of equity had been promoted by SCOPE as a means to strengthen PSEs even when the government equity came down below 50 per cent. The philosophy behind SCOPE’s model entitled ‘The Third Option’ was to professionalise the boards and management of the state owned undertakings, which would lead to sizable appreciation of the equity in these companies and enable government to mop up larger sums of money.

In a presentation at the meeting of the Cabinet Committee on Disinvestment (CCD), headed by Prime Minister Shri Atal Bihari Vajpayee during the first half of July, Disinvestment Minister Mr. Arun Shourie outlined the idea of public offering of equity in PSEs where the government has or would continue to have majority stake.

The idea was to sell 10-25 per cent stake in the market in leading PSEs that could range from Indian Oil Corporation, Oil and Natural Gas Corporation to National Thermal Power Corporation and Bharat Heavy Electricals Ltd. Although no decision has been taken on as to which companies would be put for minority divestment through open market route, CCD is understood to have reached a tacit understanding on the issue and Disinvestment Ministry would start a dialogue with the concerned administrative ministries for finalizing the list.

As such the government is going ahead with the domestic issue of 10 per cent equity in the case of National Aluminium Company, ahead of finding a strategic Buyer for it and an ADR/GDR issue for the aluminium major. Likewise the government is also selling this year stake in Maruti Udyog Ltd (MUL), where Japanese partner Suzuki Motor Corporation recently acquired majority stake through a preferential issue on payment of a premium of about Rs.1,000 crore to government, in the retail market to enlarge the equity holder base. Disinvestment Ministry feels that this is the proper time for encashing the upswing in prices of PSE equity. After all, the market capitalization of government equity in listed PSEs has shot up to over Rs.166,000 crore at a time when a number of these undertakings are either not listed or are sick. As per available information market capitalization of Bombay Stock Exchange during January 8 to May 16 increased by 14 per cent. On the other hand, market capitalization of PSEs at BSE increased from Rs.96062 crore to Rs.166,671 crore, reflecting a growth of over 73 per cent. Consequently the percentage share of PSE shares in BSE increased from 17.26 per cent to 26.27 per cent. 
Simultaneously, the government has also floated an idea for creation of an Asset Management Company (AMC) that will manage its equity in all the PSEs. The suggestion for an AMC came from none other than new Finance Minister Mr. Jaswant Singh who suggested that his ministry and Disinvestment Ministry “work together for creating an AMC for managing all government equity in different PSEs.” Although it is just a proposal, a group of Ministers would work on it for preparing a concept paper that among other things would also look into the issues and powers of administrative ministries vis-à-vis AMC.

A few years back there was a debate on whether government could create a Special Purpose Vehicle for taking over the equity in all the PSEs that the government decided to divest in. A concept to this effect was floated by the then Finance Secretary Dr. Vijay Kelkar. Subsequently the founder Chairman of the Disinvestment Commission Mr. G.V. Ramakrishna gave a varied concept with the same basis of transferring the government equity in PSEs to a separate entity. This was aimed at cutting down the delays in decision making as also empowering the new entity to take advantage of market conditions and offload equity at the best possible time. Even SCOPE supported a concept of holding company for retaining equity of PSEs and endorsed Mr. Ramakrishna’s concept.

As a matter of fact some of the PSEs under strategic disinvestment have recorded as high as over 500 per cent increase in the market prices of their shares. For example, share price of Madras Fertilizer jumped from Rs.3.50 to Rs.19.25 during the period January 8-June 4, 2002 while the value of HMT scrip zoomed from Rs.4.50 to Rs.29.40, according to information collected by the Disinvestment Ministry for the purpose of the presentation at the CCD.
It looks like the wheel has taken a full circle. The new concept, if developed and implemented, would help broadening the base of equity holders of PSEs to give a true meaning to Public Enterprises of the people for the people. In the process the broadened equity holder base would put pressure on managers of PSEs to be more accountable and responsive and at the same time help neutralize the needless interference and pressures from the bureaucracy in day-to-day running of the State owned enterprises.

By arrangement with Kaleidoscope