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Divestment: hastening the pace
THE DISINVESTMENT programme of the Union Finance Ministry is now being implemented on different lines, as the earlier experiments did not yield the desired results. Until 1999-2000, the emphasis was on diluting the ownership of the Centre in select public sector enterprises (PSEs) through offers for sale of limited blocks of shares on the basis of tenders or auctions. But the success of this approach depended on active trading in the stock markets.
Against the target of Rs. 44,300 crores during 1991-2000, the amount realised was only Rs. 18,393 crores. There were glaring shortfalls over the target in six out of nine years, these being exceeded only in 1991-92, 1994-95 and 1998-99, when the stock markets were buoyant.
Since the progress in a decade was disappointing and the Centre was anxious to speed up the process of privatisation of select PSEs and implement the recommendations of the Disinvestment Commission, it was decided to effect strategic sales of blocks of equity shares of select enterprises.
Successful strategic sales
A big effort was made in March last year, with the offloading of 51 per cent of the equity capital of Bharat Aluminium Company (BALCO) to Sterlite Industries for a consideration of Rs. 551.20 crores.
The new management has secured a majority stake in the process. Though, there was considerable controversy over this deal, the Supreme Court finally decided that the strategic sale by the Centre to Sterlite Industries was in order.
The offer of a limited block of shares by Videsh Sanchar Nigam (VSNL) to the public at a price of Rs.700 per share was well received and the new shareholders have benefited by the liberal bonus issue and handsome dividends. Even so, the Centre's stake in the paid-up capital was 52.97 per cent.
The strategic sale of 25 per cent equity capital of VSNL attracted two keen bidders, Panatone (Tata Group) and Reliance Industries (RIL). The former was successful, as the bid price at Rs. 1,439 crores was higher than that of RIL and worked out to Rs. 202 per share.
The residual interest of the Centre is 27.97 per cent. Tatas have indicated that they would make an offer to acquire 20 per cent of the equity capital held by outside shareholders at Rs. 202 per share in April this year.
High bid by IOC for IBP It was also recently announced that 33.58 per cent of the paid-up equity capital of Indo-Burma Petroleum (IBP) had been sold to Indian Oil Corporation (IOC) for a price of Rs. 1,153.68 crores, the average price for each share involved in the transaction being Rs. 1,551 per share. As in the case of VSNL, IOC will have to make an open offer to outside shareholders for acquiring IBP shares at the price paid by it to the Government.
The ownership of the Centre in the equity capital of IBP before the deal was 59.58 per cent. Since the offer price of IOC for IBP shares under the takeover code for 20 per cent of the paid-up capital will be quite high, the response from the outside shareholders is bound to be overwhelming.
Fresh deals in the offing
The spectacular success of these two transactions by the Union Ministry of Disinvestment has encouraged Mr. Arun Shourie to take decisions about the offloading of 25 per cent of the equity capital of Indian Petrochemical Corporation (IPCL), 26 per cent of National Aluminium Company (NALCO) and a similar quota in respect of Hindustan Zinc (HZL) in the coming weeks. The strategic sale of 25 per cent of equity capital of IPCL has long been delayed. However, with the improvement in market sentiments the price secured for the equity shares may be Rs. 100 or more and may enable the Centre to realise even Rs. 650 crores for the 25 per cent block of IPCL. The paid-up capital of IPCL is Rs. 249.10 crores and the existing ownership of the Centre is 59.95 per cent.
The offer under the takeover code to absorb a further 20 per cent of the equity capital held by outside shareholders will have to be made as in the case of VSNL and IBP.
A different procedure may perhaps have to be followed, in the case of NALCO, as the Centre owns as much as 87.13 per cent of the equity capital. It has, therefore, been decided that ADRs, GDRs and other instruments should be issued for 30 per cent of the capital in different tranches. Subsequently, there will be a strategic sale of 26 per cent to the successful bidder followed by an open offer of 20 per cent at the bid price to outside shareholders.
In respect of HZL, the deal will relate to 26 per cent of the equity capital of Rs. 422.50 crores, the Government stake being 75.92 per cent. Besides these special deals, 74 per cent of equity capital of Paradeep Phosphates (PPL) has been acquired by Birla promoted Zuari Chemicals and Fertilisers and Maroc Phosphore of Morocco at a price of Rs. 151.70 crores. With the success of all these transactions, the target of Rs. 12,000 crores for the current financial year under the disinvestment programme for the current financial year may be reached, if the special dividends amounting to Rs. 2,250 crores distributed by VSNL and another amount possibly by Oil and Natural Gas Corporation (ONGC) were also taken into account. HPCL and BPCL ahead for strategic sale.
The Cabinet Committee on Disinvestment has also indicated its decision to effect strategic sales out of the holdings of the Centre in Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL). The latter owns Kochi Refineries (KRL) and Numaligarh Refineries (NRL) as subsidiaries. The announcements in this regard may be made within three months of the dismantling of the Administered Pricing Mechanism (APM). In the case of IOC, of course, there has been no suggestion so far of any dilution of ownership or strategic sale.
Lively stock markets
The stock markets have been lively with a scramble for purchasing equity shares of PSEs likely to be favourably affected. While the existing outside shareholders stand to benefit considerably by recent developments, it is important to note that the Union Finance Ministry will be benefiting by a substantial appreciation in values of its residual holdings.
While it remains to be seen whether the Central Exchequer will decide to effect sales out of its remaining holdings at the improved rates at later stages for mobilising sizable resources, the budgetary position of the Centre in 2001-02 may not disclose any noticeable improvement in the revised estimates, even with the realisation of the target under the disinvestment programme and the gathering of resources for Rs. 1,600 crores with a steep rise in the excise duties on motor spirit and high speed diesel oil (HSD).
The revenue deficit is likely to be much higher in the revised estimates as compared to the budgetary figure. This is because the revenue deficit had risen to Rs. 66,559 crores at the end of December 2001 from Rs. 40,824 crores and the fiscal deficit to Rs. 89,014 crores from Rs. 64,628 crores, notwithstanding higher non-tax revenues and larger non-debt capital receipts.
The bigger gap has necessarily to be bridged with heavy borrowing through open market loans and the net amount secured on February 1, 2002 at Rs. 79,501 crores was higher than the budget estimate of Rs. 77,353 crores and only Rs. 68,183 crores in 2000-01.
With a continuing recession and a deteriorating budgetary position, the proposals for 2002-03 have to be formulated under difficult circumstances, especially as Yashwant Sinha has to provide new incentives for boosting saving and investment and reviving the economy.
P. A. Seshan
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