Cabinet clears PSU buyback plan

8 Firms: Spooked by fisc,govt seeks to mop up funds to the tune of Rs 15,000 crore.

With mounting pressure on the fisc,the government on Thursday finally decided to pursue disinvestment through the PSU share buyback route. The decision,taken by the union cabinet,will allow profitable public sector undertakings (PSUs) to buy back a part of the governments stake,or purchase government stake in other PSUs.

The proposal,which was earlier deferred by the cabinet after opposition from the ministries of oil,power,steel and coal,will help the government raise much needed funds from disinvestment to keep the deficit under check.

A list of eight PSUs including Coal India,NMDC,SAIL,NTPC,ONGC and OIL has been prepared,with details of their cash positions. They are likely to be asked to partake in the disinvestment programme. We hope to raise about Rs 15,000 crore, said a government official.

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According to estimates,about two dozen blue chip PSUs are sitting on cash reserves of over Rs 1,80,000 crore. Despite an ambitious target of Rs 40,000 crore from disinvestment receipts in 2011-12,the government has till date raised only Rs 1,145 crore from stake sale in Power Finance Corporation. Its stake sale in ONGC through the auction route,which closed today,may fetch another Rs 8,500 crore.

The government had targeted a fiscal deficit of 4.6 per cent of the GDP for 2011-12. Data released by the Controller General of Accounts on Wednesday showed that the deficit has exceeded the target at the end of the first 10 months of the financial year.

Asked about the cabinet decision,Finance Minister Pranab Mukherjee said,I cant say anything… There is due procedure and it will be announced in due course.

Government sources said an empowered group of ministers (EGoM) would be set up soon to decide on the modalities of the buyback,including the number of shares and pricing.

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Analysts are unsure if the move will help the government raise substantial funds this fiscal. The government is trying out all possible modes for disinvestment. But it remains to be seen how enthusiastic PSUs are about this proposal,as it could hurt their capex plans, said Jagannadham Thunuguntla,head of research at SMC Global Securities. With less than a month to go before the year closes,the success of the buyback will be limited.

Market regulator Securities and Exchange Board of India had earlier relaxed norms for buyback of shares and dilution of equity by companies. The new norms will help companies complete the buyback process fast. Analysts pointed out that state-run firms like MMTC Ltd,which are already on the disinvestment list,could now be put on the buyback route. PSUs such as Hindustan Copper Ltd,HMT and State Trading Corporation of India Ltd,which do not comply with the minimum public shareholding norms and where government stake is over 90 per cent,could also be made a part of the proposal.