Indian Express, 6 October 2004
Listed PSUs It’s a win-win formula: sell govt shares in listed PSUs, keep stake above 51%, share wealth with staff, use money to retire debt
The initial public offering of National Thermal Power Corporation (NTPC), India’s biggest power producer, will open day after tomorrow. Next month, NTPC will be listed. Like other listed PSUs, NTPC offers the government a harvest that is waiting to be reaped—Rs 79,000 crore.
Privatisation is virtually dead, the disinvestment target in Budget 2004 has been scaled down to Rs 4,000 crore. But the low-lying fruit are the listed PSUs.
Over a period of say two years, Finance Minister P C Chidambaram can pluck them by selling some of their shares—without making the Left angry, keeping the government’s share above 51% and therefore retaining management control. And, in the process, he can make the PSU employees—and the public—shareholders and stakeholders in these companies.
And, surely,no one can accuse the Government of handing over ‘‘nation’s jewels’’ to private monopolists.
This win-win formula is straightforward. It does not involve any of the tricky issues that dog privatisation: problems of choice of strategic partner, valuations, trade union opposition, and control of the administrative ministry.
The government will now raise money by selling five per cent of the Government’s share in NTPC, when NTPC does its first public issue. But a public issue is intrinsically hard because buyers do not know the true worth of the shares. It often yields underpricing.
However, the simplest possible disinvestment mechanism concerns listed PSUs. An analysis of the CMIE Prowess database by The Indian Express shows that there are over 45 PSUs owned directly or indirectly by the Central Government which are listed.
Their shares are already being traded on the NSE or BSE. The government can sell shares in the secondary market such that its share falls to 51 percent. This approach does not have difficulties of valuation of the company.
Take those PSUs not in the banking or the oil sector.
• The biggest amount that can be raised by selling government shares, in this group, is in SAIL. The government owns over 85 per cent of SAIL. By bringing this share down to 51, it can raise a total of over Rs 6,000 crore.
We use the market cap of September 17, 2004 to calculate the amount that can be raised. This amount is only an indication of the order of magnitude. The exact amount would clearly differ on a day to day basis.
• In BHEL, the sale of 16 per cent government shares would keep government control, and still raise over Rs 2,000 crore. Even if half the companies in this sub-list alone are chosen, the amount that can be raised is much larger than the Rs 4,000 crore targeted from disinvestment proceeds this year.
This approach can also be applied to oil companies. Again, we are not looking at privatisation of navratnas. A company such as HPCL has 51 per cent government share and remains a public sector company. So there should be no objection if the same is done with ONGC.
• Today the Central Government owns 74 percent of ONGC. If it sells 23 percent of ONGC to the public, then at current prices, it could raise over Rs 24,000 crore.
• Similarly, the Central Government owns 82 percent of IOC. Bringing its share down to 51 percent could raise over Rs 15,000 crore. This strategy could raise a total of over Rs 46,000 crore from the oil sector alone.
The next group of listed PSUs are the banks. Already, there are several banks where the public holds a large part of the company. These continue to be public sector banks. This is not a proposal for bank de-nationalisation, which is a separate debate.
• So, for example, the share of RBI in SBI is 60 per cent. This does not make SBI any less a PSU bank than PNB where the share is 80 per cent. Bringing government share down to 51 percent in PNB could raise over Rs 2,000 crore.
Since this does not involve ‘‘de-nationalisation’’ of banks, there should be no bjection to this from the CMP. Since it does not involve changing management practices, or interference by government, nobody should have any objection to it.
A total of about Rs 10,000 crore can be raised by disinvesting shares of PSU banks.
These calculations are entirely based on secondary market prices. This makes it possible for the government to easily sell shares to the public using secondary market transactions. This can be done in a transparent and non-discretionary manner, by cutting up the shares into 500 "parcels", and selling one parcel every morning on the NSE.
Such sale of shares has the advantage of reaching millions of households across the country who are able to access NSE trading screens in their neighbourhood. In addition, employees of PSUs should be given stock option programmes—similar to those used in IT companies. This way they will have a stake in higher stock prices.
The receipts that can be obtained from such a sale of government shares is so much larger than the Rs 4,000 crore budgeted in this year, that it is important to clearly identify the use of this money. Even if Rs 40,000 crore is raised in one year, the money should not disappear in current government expenditure.
The disinvestment proceeds shows up as capital receipts in the budget. The best and simplest use for this money is to retire public debt, and thus bring down India’s Debt/GDP ratio by more than 2.5 percentage points.
This would reduce the pressure of interest payments and debt servicing, and thus strongly assist fiscal consolidation.