The government will be visiting Dalal Street quite often next fiscal as it plans to raise as much as Rs 72,500 crore from disinvestment in the financial year 2017-18.
Finance Minister Arun Jaitley in his Budget 2017 speech said the government is going to continue with its disinvestment policy and will also rely on exchange-traded funds to offload shares. Jaitley has lined up initial public offers in three railway arms and five insurance companies, besides strategic and other stake sales.
The sale of 25 percent stake in each of the five state-run insurance companies is expected to generate around Rs 11,000 crore, and the strategic sale will raise close to Rs 15,000 crore. The remaining Rs 46,500 crore will come from other disinvestments.
The three railway arms to be listed include Indian Railway Catering and Tourism Corporation Ltd. (IRCTC), Indian Railway Finance Corporation Ltd. (IRFC) and IRCON (Indian Railway Construction) International Ltd.
IRCTC and IRCON International are debt-free, profitable companies in the business of catering & hospitality and infrastructure, respectively. IRFC is a financing arm of the Ministry of Railways which has a higher net worth compared to the other two.
The government has already announced its intent on listing five wholly-owned general insurance companies -- National Insurance Company Ltd., Oriental Insurance Company Ltd., New India Assurance Company Ltd., General Insurance Corporation of India and United India Assurance Ltd.
All these companies are into non-life insurance business, which includes motor, health, travel, home, marine and commercial insurance. General Insurance Corporation also happens to be the only third party insurer in the country right now, but Lloyd’s, the world’s largest insurance marketplace will be begin operations from April 2017.
These eight CPSEs had dividend payout rate in the range of 40 percent to 850 percent for the financial year 2015-16. Listing these CPSEs will help the government monetise these assets and help the companies meet capital requirements.
Listing of some central public sector enterprises, including those under the railway ministry, will help the government unlock value of these companies and monetise them to generate resources for investment in new projects.Sai Venkateshwaran, Partner & Head, Accounting Advisory Services, KPMG India
While the disinvestment target has been rising with each passing year, it has missed the budgeted estimate for six straight years.
For 2016-17, the government has met only 66 percent of its revised plans to raise Rs 45,500 crore through disinvestment. Volatile market conditions have affected the government's stake sales -- mostly in commodity and oil stocks.
The government revised its target to raise money through strategic disinvestment for financial year 2016-17 to Rs 5,500 crore, nearly one-fourth of what was budgeted. However, the new revised target could still pose a challenge because the government managed to raised only Rs 2,100 crore by divesting 1.63 percent stake in Larsen & Toubro Ltd.
Currently, the value of government’s stake in four of its strategic holdings -- Larsen and Toubro Ltd., Axis Bank Ltd., ITC Ltd., and Hindustan Zinc Ltd. -- is worth around Rs 96,610 crore.
In 2015-16, the government was able to raise about Rs 18,400 crore by selling stakes in Rural Electrification Corporation Ltd. (Rs 1,608 crore), Power Finance Corporation Ltd. (Rs 1,671 crore), Dredging Corporation of India Ltd. (Rs.53.33 crore), Indian Oil Corporation Ltd. (Rs 9,369 crore), Engineers India Ltd. (Rs.643 crore), and NTPC Ltd. (estimated Rs 5,050 crore).
The government will also continue to use exchange-traded funds (ETFs) for further disinvestment of shares. Through the second ETF tranche of 10 CPSEs, the government had raised Rs 9,600 crore.