POLITICAL ECONOMY

India to raise $2.7bn though stake sales in 4 resource firms

In a bid to curb a burgeoning fiscal deficit, the Indian government has finally approved the sale of stakes in Nalco, MMTC, Hindustan Copper and Oil India.

Author: Shivom Seth
Posted: Friday , 14 Sep 2012

MUMBAI (MINEWEB) - 

In order to curb the burgeoning fiscal deficit and bring the economy back on track, the Indian government has approved the sale of its minority stakes in the four public sector firms Nalco (National Aluminium Company), MMTC (Metals and Minerals Trading Corporation of India), Hindustan Copper and Oil India.

The sell off will help raise up to $2.7 billion (Rs 150 billion).

The government has not taken a decision with regards to Neyveli Lignite, a government owned lignite mining and power generating company,  of which it was also planning to divest a stake.

The government has approved the proposal to sell 10% stake in Oil India and another 9.59% disinvestment in Hindustan Copper. The Cabinet Committee on Economic Affairs also cleared the proposal of 12.15% stake sale of Nalco and 9.33% in MMTC through the Offer for Sale (OFS) route.

India's finance minister P Chidambaram asked officials last month to expedite the process of disinvestment so that the state-owned companies could hit the stock markets and help the government achieve the target of $5.5 billion (Rs 300 billion) in the current fiscal.

The markets have welcomed the proposal. On Friday, the same public sector companies gained on the stock market. The cabinet committee on economic affairs (CCEA) had a meeting on Friday evening to consider the disinvestment proposals. The announcement came through late evening.

Analysts have given their take on the issue. A K Prabhakar, senior vice president at equity research firm, Anand Rathi said, ``We are positive on the stocks like Nalco and Hindustan Copper. PSU stocks are generally cash rich stocks and have lower debt on books which shows a healthy balance sheet. Because of the government control, they are also generally the preferred ones to get orders. This gives further order book consistency and future visibility.''

Although five months have passed in the current fiscal, the government has not been able to come out with a single public issue.

Another broker, Mandar Kanthi said though the government had cleared divestment in Steel Authority of India, the issue has not gone through owing to stock market conditions. ``With the threat of a ratings downgrade looming, the Indian government is moving quickly to send some investor friendly signals,'' he added.

Analysts also said raising adequate funds from disinvestment was necessary to keep in check the fiscal deficit which is facing pressure due to rising food, fuel and fertiliser subsidy bills.

At the end of July, the Indian government told international investors that it planned to sell stakes in 75 public sector companies, including 15 that are proposed to hit the markets during the current fiscal.

During its road shows in the Persian Gulf to attract foreign retail investors in July, India's finance ministry had said that the proposed stake sale would be in addition to the 50 companies that are already listed on stock exchanges.

The finance minister has been keen to revive share sales of listed public sector units, primarily those in which public holding is less than 25%, hoping to send out a strong signal of the government's intent to improve finances and boost investor sentiment.