Divestment Mop-Up To Cross Rs 70,000 Crore After PFC-REC Deal

The government is just Rs 10,000 crore short of meeting the divestment target for the ongoing financial year as it approved the sale of its entire stake in power sector financier REC Ltd. to state-run peer Power Finance Corporation Ltd.

The gap is expected to be bridged by further fund offers of central public sector enterprises exchange traded fund, offers-for-sale and share buyback by public sector entities.

The government’s stake sale in REC to PFC is on the lines of Oil & Natural Gas Corporation Ltd.’s acquisition of a 51 percent stake in public sector refiner Hindustan Petroleum Corporation Ltd. to help it meet the divestment target. This is the thirteenth such transaction since 1998 where the government has sold stake in public sector companies to other state-run peers to mop-up funds to meet its divestment target.

As on Feb. 28, the government collected Rs 56,473 crore against the Rs 80,000-crore target for the financial year ending March 2019. Its stake sale in REC will take the total divestment proceeds to Rs 70,973 crore. This, however, does not include CPSE ETF’s further fund offer through which the government plans to raise Rs 3,500 crore and a green-shoe option of Rs 6,500 crore. On March 19, the ETF received bids worth Rs 6,072 crore, newswire PTI reported. The fourth further fund offer will close on March 22.

Meeting the divestment target is important to bridge the budget gap as lower tax collections and increased expenditure due to farm loan waivers may worsen the fiscal health of the country. To be sure, the government, in its interim budget 2019, revised the fiscal deficit target at 3.4 percent of GDP for the ongoing financial year from 3.3 percent earlier.

This year, the major chunk of the divestment proceeds—Rs 18,729 crore—came from Bharat 22 ETF, followed by the third further fund offer of CPSE ETF of Rs 17,000 crore. Offer-for-sale of stake in Coal India Ltd. helped the government raise Rs 5,218 crore, while Rs 2,647 crore came from buyback of shares by Indian Oil Corporation Ltd.