GVR for Trust to handle divestment

This would in effect make the company a non-PSU thus changing investors’ perception and boosting its share value. "Investor sentiment towards PSU stock was negative," Ramakrishna felt.

Such a move would also have a double advantage because the company would now be run by professional board (consisting of the chairmen of IDBI, SBI, LIC, financesecretary and chairman of the divestment commission among others) and be free of government interference.

The trust would transfer the proceeds of the sale (made to the institution) to the government of India. Retaining 26 per cent, it would offload the rest in small chunks, when conditions were favourable, to banks, financial institutions or in the retail market. The government would receive the proceeds of each of these sales as and when they were executed. The entire exercise would enable the government to maximise returns on its investment.

The trust would differ from the SPV in that there would be no need for the trust to borrow money because it would only involve transfer of shares and not buying the shareholding.

The same route would be followed even in blue-chip PSUs where government holding was above 70 per cent. In this case, the government will first have to reduce its stake to below 70 per cent through book-building or other route, he said.

Regarding PSUs in non-core sectors, Ramakrishnarecommended a straight forward sale through global bidding. This would bring in much-needed foreign exchange immediately and was even better than foreign direct investment, in that sense, he said. Of the 30 PSUs in which the commission had recommended 100 per cent government divestment, 25 PSUs were in this category.

In case of loss-making PSUs, Ramakrishna said they had to be closed down but after adequate benefits to investors. He anticipated the move to privatise blue-chip PSUs — barring some which would remain 100 per cent with the government — would attract a lot of opposition.

"The government has not considered this kind of activity so far," he added. However the aim of the exercise was to create a new class of companies on the lines of the National Stock Exchange and Larsen and Tourbo.

He criticised the Mohan Committee recommendations and termed them unrealistic. He felt the Rs 26,000 remuneration recommended for chief executives of PSUs was close to half of what a private company wouldoffer.

Later, D Basu, chairman, Securities Trading Corporation of India, elaborated on the importance of "right sizing" PSUs and reducing the burden created by a huge workforce. He called for an active labour ministry which could pursue an aggressive Voluntary Retirement Scheme (VRS) programme. "More has to done on re-training people," he said of the existing VRS programmes.

P S Subramanyam, chairman of Unit Trust of India, said there was no harm in the government undertaking PSU disinvestment to bridge fiscal deficit. It should be viewed in the light of capital restructuring exercise, he said. Reacting to questions on UTI and its troubled US-64 scheme, he said it was strong and did not need a bail-out.

Speaking at the seminar, Subramanyam said that not all PSUs had worked towards enhancing shareholder value, in this case the governments and therefore the taxpayers. The money realised from the sale would help the government to better realise its social objectives.

Nimesh Kampani, chairman (financialservices sub-committee), CII (western region), welcomed the concept of a national shareholding trust but expressed doubts about whether the market situation would improve.