Disinvestment takes off

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The disinvestment programme for 2014-15 seems to have kicked off in right earnest with
the Union Cabinet clearing the sale of government stake in three major public sector
companies Oil and Natural Gas Corporation (ONGC), Coal India (CIL) and National
Hydroelectric Power Corporation (NHPC). The sale of 5 per cent stake in ONGC, 10 per
cent in CIL and 11.36 per cent in NHPC will generate over Rs.45,000 crore at the current
market prices of these shares. The government had budgeted Rs.43,425 crore for the
current fiscal from disinvestment and an additional Rs.15,000 crore from the sale of
residual stake in already privatised companies such as Bharat Aluminium and
Hindustan Zinc. A successful execution of the stake sale plan now approved will go a
long way in helping Finance Minister Arun Jaitley to meet his promise of keeping the
fiscal deficit at 4.1 per cent for the current year. What augurs well for the government is
that the markets are now buoyant, with the S&P BSE Sensex ruling at historic highs and
foreign institutional investors actively buying stocks. With a proposal to increase retail
quota in the offer for sale to 20 per cent from 10 per cent currently, there is scope for
greater retail participation, especially if the government offers concessions to retail
investors in the offer price.
The disinvestment programme, since it began in the early 1990s, has managed to meet
the budgeted targets only thrice, and the best year was 2012-13 when the government
raised Rs.23,957 crore from stake sales. This will, therefore, be the best-ever year for
disinvestment revenues, but there could be a couple of hurdles for the government to
cross along the way. The employees unions at CIL are up in arms, resisting what they
call the privatisation of the company in which the government now holds 89.65 per
cent. There could be tricky days ahead in getting the unions, which have threatened a
strike, on board. Such an eventuality could bring down the valuation of CIL and
consequently the proceeds from stake sale. The choice of NHPC is also intriguing given
that it has not been performing very well. Plagued by dues from some state utilities and
delays in project execution, the company is heading for a loss this fiscal year, according
to its own communication to the government. The price that the share will fetch may
therefore not be optimal for the government. As for ONGC, clarity on the gas pricing

policy of the government will help investors to value the company better. The
downtrend in global oil prices will reduce the subsidy burden and increase ONGCs
profitability. Having got Cabinet clearance, the disinvestment department should move
quickly to complete the sale process and capitalise on the current positive atmosphere.
Keywords: Disinvestment, ONGC, Coal India, NHPC, disinvestment roadmap

Govts mega disinvestment. Should you buy? Discounts could be an opportunity to buy into these
companies but understand fundamentals first Rajesh Kumar inShare 0 inShare 0 Comments
Subscribe to: Daily Newsletter Breaking News Latest News 08:33 PM IST RILs Rs1.8 trillion
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Court strikes down National Tax Tribunal law Apples Tim Cook goes from record sales to iPhone
stumbles With canal, hut in Ladakh, Indian army stands up to China What the SC verdict on coal
blocks means for power, metal, banks and investors Hemant Mishra/Mint Last week, the Cabinet
Committee on Economic Affairs of the government of India approved stake sale in three state-owned
companies. The government will sell its stake in NHPC Ltd (11.36%), Coal India Ltd (10%) and Oil
and Natural Gas Corp. Ltd (5%). If the stake sale is successful, according to estimates, the
government will be able raise about Rs.43,000 crore from the process, which would be a record. The
highest that the government has been able to raise through stake sales in a single year so far was
Rs.23,956.81 crore in 2012-13. It is also expected that to increase participation, the reservation for
retail investors would be increased from 10% to 20%. Differently put, retail investors will be expected
to buy shares worth about Rs.8,600 crore in the stake sale. It is also being widely anticipated that
retail investors will be offered shares at a discount. So, should you buy? The tricky part An offer for
sale is tricky for the investor as well as the company because of pricing. Since the companies are
already listed and the price is being discovered with every trade, it is difficult to set the offer price. If
shares are not offered at a discount to the market price, there will be no incentive for investors to
apply as they will be better off buying from the secondary market. However, if a discount is offered,
the market price will correct as existing investors will offload shares in the secondary market to buy
shares of the same company in the offer for sale. Also, it becomes difficult for investors to take a call
because prices may turn volatile at the time of stake sale. It is possible that investors are better off
buying in the secondary market at the time of stake sale. For example, the government offloaded its
stake in Steel Authority of India Ltd in March 2013 at the price of Rs.63 per share. However, in the
market, the stock fell from the level of Rs.93 in January 2013 to Rs.60.68 on the offer date. The
benchmark S&P BSE Sensex declined close to 5% during the same period. Similarly, the share
price of NTPC Ltd declined from the level of Rs.150 on 22 January 2013 to Rs.136.09 at the time of
stake sale on 7 February 2013. This time, too, things may not be very different. Share prices of all
three companies corrected on 11 September, a day after the disinvestment announcement was
made. On offer Investors who like these companies would probably already have the stocks in their
portfolios, and price corrections and discounts at the time of stake sale would be an opportunity to

accumulate more. However, for investors with no exposure to these companies, discounts on the
prevailing market price could be an attraction. Participation will depend on the price at which shares
are offered. If it is close to the market price, retail investors will not come in. My recommendation is
to give 15% discount to the retail investors, said Prithvi Haldea, founder chairman, Prime Database.
Should retail investors invest only because of the discount? Remember, share prices adjust very
rapidly in the stock market and the discount can vanish in no time. Therefore, investors who are only
looking for an arbitrage opportunity should be careful. Discount to market price at the time of an offer
may not necessarily mean quick gains. Long-term investors should also avoid buying only because
of the discount that is likely to be offered. Investors should look at the fundamentals and should not
be driven only by the discount that is offered. If investors are convinced about the stock, the discount
is an added advantage, said Dipen Shah, head (private client group research), Kotak Securities Ltd.
Discounts should not be treated as safety, added Haldea. The discount does not mean safety; it
reflects that retail investors are treated separately and are treated well, he added. Differently put,
discount on the offer price will not eliminate the risk of investing in equities. However, experts are of
the view that investors could opt for these offers if the price is attractive. They should go for it if the
pricing is right, said Sudip Bandyopadhyay, managing director and chief executive officer,
Destimoney Securities Pvt. Ltd. Other issues The current stake sale proposal by the government is
the largest ever and, depending on pricing, will take away about Rs.43,000 crore from the
marketplace. Will it have an impact on the secondary market? Experts say that it will not have a
negative impact on the secondary market as there is ample liquidity. However, it is also being
argued that the impact on the secondary market will depend on the timing and if the offers are
spaced out, it will not have a negative impact. There is liquidity in the market to support these offers.
Mutual funds have turned net buyers after a long gap and foreign investors continue to buy Indian
shares. Though experts are of the view that if the share sale is priced attractively, the government
will be able to sell its stake successfully, they are not certain if this will revive activity in the primary
market, which has not seen much action in recent times. I dont think that stake sale can revive the
primary markets. It is the IPO (initial public offer) that revives the primary market, said
Bandyopadhyay. Mint Money take The stake sale will depend on pricing and how markets behave at
that point. There is a possibility that these stocks will turn volatile as pricing details emerge. It would
be advisable for investors to invest only if they like the company and not just to take advantage of an
arbitrage opportunity, if any, as prices in secondary markets can quickly adjust to changing market
realities.
Read more at: http://www.livemint.com/Money/ppBLfBAZXUPykYYBsXS88H/Govts-megadisinvestment-Should-you-buy.html?utm_source=copy

PSU divestment hopefuls outperform

markets
Stocks like BEML have risen as much as 300% in the past one year
Puneet Wadhwa | New Delhi
July 28, 2014 Last Updated at 12:14 IST

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Stocks of divestment /stake sale probables like Steel Authority of India Limited (SAIL),
Mahanagar Telephone Nigam Limited (MTNL), National Aluminium Company (NALCO)
and Container Corporation (CONCOR) have outperformed the markets in the past one
year.
Most of the stocks from the PSU basket that are either classified as sick units that can
be sold-off or where the government can divest some of its shareholding have gained
up to 300% in the past one year, with stocks like BEML (up 295%), MTNL (up
150%), SAIL (up 110%), NALCO (up 107%) and FACT (up 85%) topping the chart.

In contrast, the S&P BSE Sensex and CNX Nifty have moved up nearly 33% each in the
past one year. The S&P BSE PSU index has gained 42% during this period.
According to reports, the government plans to sell 5% stake in SAIL around Diwali in
October 2014, followed by Coal India.
"The government is trying to drive efficiencies in a lot of public sector companies. This
has been a clear cut agenda for the government that they'll try and create more
autonomy for PSUs to try and get them at par with the private counterparts. One needs
to evaluate companies on a case-to-case basis as each company has a different set of
factors working for and against it," said Mayuresh Joshi, vice-president (institutional),
Angel Broking.
Besides these two, it has identified about a dozen other companies in which the
government could offload shares this financial year, reports suggest. Power Finance
Corporation (PFC), Rural Electrification Corporation (REC), Tehri Hydro Development
Corp (THDC), SJVN, NHPC, CONCOR, MMTC, NLC and MOIL are some of the other
companies where the government could cut its stake via the offer-for-sale (OFS) route.
Points out Amar Ambani, head of research, India Infoline Group: "I do believe that
there will be some interest in the divestment process as investors who are now
warming up to the market or who think that they missed the bus would like to jump in.
Having said that, I don't think the government will be in such a hurry to divest
immediately. They may wait for the second-half of the year or closer to the last four
months of the current financial year to go into divestment overdrive in a hope that till
then there will be a further appreciation in stock prices."
STOCK STRATEGY
Analysts say the recent run up in these stocks could prove to be an overhang in some
of these stocks. One also needs to assess at what price / valuation does the
government offer the shares.
Usually, when the government does dilute its stake, it is at a discount to the prevalent
market price.
"Unless we see a substantial improvement in fundamentals, I don't think one should
buy such stocks given the run up and play any divestment story. There are ample
opportunities for investors in the large-and mid-caps. There is no point getting into a

stock where absolute comfort is missing. However, in case of ONGC and Coal India,
there are other triggers besides the divestment that can play out like deregulation of
diesel prices, gas price hike etc," Ambani of IIFL says.
"At a fundamental level, I believe, cash flows are important aspect to consider besides
giving these companies autonomy. I suggest investors wait for these efficiencies to
come about before making an investment decision even when the government looks to
divest its stake. I don't expect fundamentals to change overnight. Power financing
stocks like PFC and REC are qualitative stories and investors need to have an
investment horizon of three - four years if they invest in these stocks via the
government's divestment programme," Joshi of Angel Broking suggests.
Adding: "We feel there is a lot of value in Coal India but it is not getting exhibited
properly due to several factors. Investors should not rush in to buy every stock
whenever the divestment is announced. It is advisable look at the fundamentals of each
company and then take an investment call from a long - term horizon."

Disinvestment target for 2014-15 likely to

cross Rs.60,000 crore
HT Correspondent, Hindustan Times New Delhi, June 25, 2014
First Published: 23:27 IST(25/6/2014) | Last Updated: 23:31 IST(25/6/2014)
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44
The government will likely set a disinvestment target of more than Rs. 60,000 crore for
2014-15, which it seeks to achieve by selling stakes in state-owned companies.
This will be much higher than Rs. 36,000-crore target set in the Interim Budget.
The capital market regulator Securities and Exchange Board of India had approved
sweeping new norms, including measures that could force the government to cap its
stake in listed state-owned companies at 75%.
There are a total 38 public sector undertakings, in which the public shareholding is less
than 25%. Bringing down the government's stake in these would mean that these
companies will need to offload shares worth about Rs. 58,000 crore in all.
Of these, one PSU alone - Coal India Ltd (CIL) - would have to sell shares worth
nearly Rs. 37,000 crore, sources said.
CIL, Steel Authority of India Limited and Hindustan Zinc Ltd are likely to be among the
first ones to be off the block in the new disinvestment programme.
At present, while all non-PSUs are required to have a minimum 25% public
shareholding regardless of their size or market capitalisation, PSUs are required to have
a minimum public shareholding of only 10%.
The reform measures will likely encourage greater retail investors' participation in public
offerings and offer them a larger slice of shares at a discount.

Disinvestment proceeds to fund PSUs, banks,

insurers: Finance Ministry
PTI Feb 26, 2013, 03.37PM IST

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("The government has decided)

NEW DELHI: The disinvestment proceeds from 2013-14 fiscal will also be utilised to infuse
capital into PSUs, banks and insurance companies, Parliament was informed today.
"The government has decided that the disinvestment proceeds with effect from the fiscal year
2013-14 ... will be used for subscribing to the shares being used by the central Public sector
enterprises (CPSEs), including public sector banks and public sector insurance
companies," Minister of State for Finance Namo Narain Meena said in a written reply in
the Rajya Sabha.
The proceeds from disinvestment would be credited to the National Investment Fund (NIF),
which was set up in 2005.
Also, the fund will be used for preferential allotment of CPSE shares to promoters so that
government holding does not go down below 51 per cent.

As much as 75 per cent of the income from NIF is used to Finance selected social sector
schemes, while the rest is utilised to meet the capital investment requirements of profitable and
revivable central PSUs.
However, because of the difficult economic situation caused by global slowdown, the
government in November 2009 decided to utilise proceeds from disinvestment only for social
sector spending. This exemption is applicable till March this year.
As on August 31, 2012 the corpus in the NIF was Rs 1,814.45 crore.
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