Govt to offload 10 pc in Balco

The UPA has approved the first share sale after it parted ways with the Left. After deferring it once, the Cabinet Committee on Economic Affairs...

The UPA has approved the first share sale after it parted ways with the Left. After deferring it once, the Cabinet Committee on Economic Affairs CCEA yesterday approved initial public offer of 10 per cent of the government8217;s remaining equity in Bharat Aluminium Co Ltd.

The CCEA approval is to 8220;offer majority shareholder Sterlite Industries that government would be prepared to dilute its equity up to 10 per cent for the purpose of listing of shares of Balco through an IPO so that market price can be discovered8221; for the residual 49 per cent held by the government.

Though not disinvestment in the true sense, as 51 per cent of Balco is owned by Sterlite, the sale of remaining shares to the strategic partner was opposed by the Left, which had demanded that the government roll back the share sale conducted in March 2001. This opposition had pushed the government to delay putting up the proposal for CCEA approval even though a Committee of Secretaries had firmed up the recommendations in May. Moreover, when it first came up at the CCEA meeting on July 3, it was deferred to await the outcome of the trust vote on July 22.

The NDA government sold the controlling shares to Sterlite with the option to call for the remaining shares after a certain period of time. In March 2004, Sterlite exercised that option and offered Rs 1,098 crore for the residual shares. But the government refused the cheque saying that the offer price of Rs 77.93 as valued by SBI Caps in March 2004 was too low.

While the squabble was on, attorney general Milon Banerjee in April 2006 gave an opinion that the government was not bound to sell the remainder to Sterlite under the Companies Act and could negotiate with Sterlite or any other third party 8220;based on market rate8221;, go in for a public issue, or not sell at all.

The government opted for negotiations and informal mediations during which it tried to convince Sterlite for an IPO for price discovery, but Sterlite did not agree. Instead, it agreed to pay Rs 180 per share which the CoS decided this May was 8220;inadequate8221;.

8220;The transfer of shares is now outside the purview of the Share Holders Agreement as the Call option has been repudiated. Hence adherence to the government principles, rules and negotiations in regard to open competitive bidding, including the CVC guidelines, would need to be ensured while selling government shareholding outside the SHA framework,8221; said the CoS. According to the CCEA document, the exact launch date would depend on the acceptance of the IPO by Sterlite. In case it refuses, both parties would have to go for arbitration, it says.

The run-up to the sale

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8226; The NDA government sold the controlling shares to Sterlite with the option to call for the remaining shares after a certain period of time

8226; Sterlite exercised that option and offered Rs 1,098 crore for the residual shares

8226; But the government refused the cheque saying that the offer price was too low

8226; Attorney General Milon Banerjee in April 2006 said the government was not bound to sell the remainder to Sterlite

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8226; The government opted for negotiations and informal mediations during which it tried to convince Sterlite for an IPO for price discovery, but Sterlite did not agree