Investors upbeat on govt’s plan for disinvestment

Officials familiar with the discussions said the market feedback on disinvestment is positive,even though there are concerns regarding fiscal deficit and the country’s rating. The Budget 2009-10 projects the fiscal deficit to touch 6.8% of the GDP by March-end,as the government raised borrowing target to Rs 4.51 lakh crore to spur demand.

A head of an FII,who attended the FM’s meeting,said on the condition of anonymity that two critical issues—fiscal stability and the country’s ratings concerns—have the potential to scuttle the disinvestments plan. “But with over $250 billion of forex reserves,the country can use the vulnerability to its advantage,” he said. India’s forex reserves stood at $271.02 billion as on August 14,according to the latest data by the Reserve Bank of India.

Global rating firm Standard & Poor’s in February lowered the outlook on the long-term sovereign credit rating on India to negative from stable. S&P had affirmed its ‘BBB-’ long-term and ‘A-3’ short-term sovereign credit ratings on India. FIIs invested $7.3 billion so far this year in Indian stock market,according to the Securities and Exchange Board of India data.

The government’s decision to gauge the investment mood of institutional investors is especially pertinent in light of the poor debut of Adani Power’s IPO,which got listed last Thursday at a 5% premium but lost steam as the day progressed and closed just 5 paise more than the issue price of Rs 100 on BSE. Adani Power closed at Rs 103.2 on Friday.

The finance ministry is hopeful of divesting in 9-10 companies in the next one year,including Oil India’s IPO and Rural Electrification Corporation’s (REC) follow-on-public offer that are likely to be launched soon. These proceeds will ease the pressure on the government’s borrowings.

The government has asked REC,which together with Power Finance Corporation funds almost 60% of the power sector needs,quickly finalise a follow-on-offer.

This is scheduled to be launched by the second week of December after the Oil India public issue is completed,government sources said.

“Disinvestment has its own merits—pricing and company fundamentals have to be right to attract investors and if that is the case,we will participate,” Kenneth Andrade,Head—Investment,IDFC Mutual Fund.

The REC issue will comprise of a 15% fresh issue of shares plus a 5% disinvestment of the government shareholding,which is estimated to fetch the company about Rs 3,000 crore at the current market price,the sources said. REC stock closed at Rs 195.30 on the BSE on Friday.

After the issue,the public shareholding in the company will rise from 18.18% to 33.20%,while the government holding will fall to 66.80% from 81.82%,sources said. REC director finance HD Khunteta told FE foreign investors were willing to put money into his company. “Outside

India money is available and they want to invest,” he said,without elaborating. Finance secretary Ashok Chawla has asked secretaries in various ministries to prepare proposals wherever divestment is possible. The government plans to sell stakes in at least six to seven more companies in the next 12-14 months,Chawla said last week.

State-owned power firm NHPC Ltd’s initial public offering for up to $1.25 billion (about Rs 6,000 crore) was subscribed more than 23 times,triggering hopes of a revival in the IPO market. Oil India IPO is estimated to fetch $500-600 million.

Analysts note that India is preferred investment destination than China. “Government will not be diluting less than 51%,which gives confidence to the investors. Now since investors globally are slush with liquidity,they would be willing to invest in India. In the global investment basket also India is better placed than China. China is over-invested and India is predominantly domestic-demand driven,both these factor tilt the global investment flow towards India,” said ICICI Bank,Head—Global Research Group,G Ramachandran.