Government May Stall Plan To Cut Stake In Some PSUs Below 51% 
A railway worker waves a red signal flag from the open doorway of a rail carriage. (Photographer: Andrey Rudakov/Bloomberg)

Government May Stall Plan To Cut Stake In Some PSUs Below 51% 

The government may not proceed with a proposed plan to lower its direct holding in some public sector undertakings, according to an official.

Government officials have raised concerns in internal meetings that lowering stake in central public sector enterprises will breach terms of foreign borrowings that promised sovereign holding of at least 51 percent, the official cited earlier told BloombergQuint on the condition of anonymity.

If the central government’s stake falls below 51 percent, it may trigger a recall by bondholders and they will have to be compensated, which would involve significant costs for companies, he said, adding that when Power Finance Corporation Ltd. had acquired Rural Electrification Corporation Ltd., it had to compensate bondholders.

The government had proposed to bring down its stake below 51 percent in at least eight PSUs—NTPC Ltd., Power Grid Corporation of India, GAIL (India) Ltd., Indian Oil Corporation Ltd., National Aluminium Company Ltd., Bharat Electronics Ltd., MOIL Ltd., and Engineers India Ltd.— while retaining control.

Many of these PSUs are part of two exchange traded funds—CPSE ETF and Bharat-22 ETF—a key source of divestment receipts for the government in the past two years. The ETFs may have to be reconstituted if the government’s holding isn’t lowered below 51 percent.

The finance ministry is in talks with administrative ministries concerned with these PSUs to check if any bond issuance and loan agreements carried terms that central government’s shareholding will be retained at 51 percent, the official quoted above said. Companies that have raised money overseas through loans or bond issuances, include PGCIL, NTPC, IOCL, and GAIL (India). For other companies, line ministries are checking if such minimum-stake guarantees were given for past borrowings of any kind.

Even though the cabinet has given its in-principle nod to the government’s plan to cut stake, it is yet to approve the threshold of reduction in each of these companies, the official said. The government wants to be sure that such hurdles do not arise after the stake sale plan is finalised and may defer the plan, he said.

The Ministry of Finance has yet to respond to BloombergQuint’s emailed queries.

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