The big hole
PSUs with surplus equal to or more than ten times the paid up capital must issue bonus shares
The government could face a big shortfall in its disinvestment target for the current fiscal given that it has raised less than half the proceeds budgeted through sell-off in the first nine months.
The government has targeted to mobilise Rs 56,500 crore via sale of public sector assets – Rs 36,000 crore through minority stake sale and share buyback and Rs 20,500 crore from strategic ssales.
Against that, it has raised nearly Rs 24,000 crore — Rs 21,432 crore via share buyback and minority stake sale and nearly Rs 2,100 crore from strategic sale in Suuti — so far.
That means the government will have to raise Rs 32,000 crore more to be able to meet the disinvestment target, a task that looks quite challenging given the prevailing market scenario.
For starters, the government has sold minority stakes in just two PSUs, NHPC and NBCC, so far in this fiscal.
The Narendra Modi government has revived the idea of strategic sale of PSU assets after 12 years. Following that, Niti Aayog has also identified more than two dozen sick and profit-making PSUs for strategic sales.
Only profit-making PSUs from non-strategic sectors will be considered for majority stake sale, a move that will lead to their privatisation. Profitable PSUs from strategic sectors like oil and gas, power and defence will be off-limits for strategic sale.
Bridge and Roof Company, Hindustan Prefab, Hindustan Newsprint, Ferro Scrap Nigam, Engineering Project( India), Hospital Services Consultancy Coproation and National Project Construction are also on the strategic sale list.
In addition, Bharat Earth Movers, Scooters India, NMDC’s Nagarnar steel plant and Steel Authority of India’s Bhadrawati, Salem and Durgapur units have also been recommended for strategic sell off by the core group of secretaries (CGD) led by cabinet secretary PK Sinha.

While the CGD has recommended 100 per cent strategic sale of 13 PSUs, including Bridge and Roof Company and Central Electronics, only 26 per cent dilution of government shareholding has been suggested in case of BEML
Three other PSUs— Hospital Services Consultancy Corporation, National Project Construction Corporation—have been recommended for merger with similar state-owned entities.
The government has approved the constitution of CGD to supervise and monitor the process of implementation of decisions of the Cabinet Committee on Economic Affairs on strategic disinvestment.
The CGD has recommended that Cement Corporation of India’s ten units can be sold off to strategic investors, either individually or in groups.
Valuation of these PSUs’ assets will be undertaken by the administrative ministries through independent valuers, who will have to following the process recommended by the CGD.
Government think-tank Niti Aayog had recommended 22 PSUs for strategic sale. Of these, only 17 are being considered for sell-off in the first round.
However, the plan is yet to take off,
With the prospect of big-ticket disinvestments or strategic sell-off in next three months being dim, the government’s disinvestment kitty is unlikely to swell much this year.
Apart from share buyback, the government has also put pressure on CPSEs to issue bonus shares, which would lead to an increase dividend paid to the government.
The government has already mandated for CPSEs to raise dividend payment from 20 per cent to 30 per cent of their individual net profits.
As many as nine PSUs, including ONGC and Power Finance Corporation, have issued bonus shares in the current fiscal and more are expected to follow suit.

According to market watchers, the number of PSUs that have issued bonus shares is the highest for any year. Last year, only Bharat Electronics declared bonus shares.
BPCL, HPCL, IOC, Oil India, Rural Electrification Corporation, Engineers India and Balmer Lawrie are the other PSUs which have announced bonus shares.
Meanwhile, analysts say Shipping Corporation of India, MOIL, Container Corporation, MMTC, Dredging Corporation and Bharat Earth Movers also qualify for issuance of bonus shares.
Financial analysts say that when companies issue bonus shares, their share capital increases, which leads to higher dividend payment.
For example, if a company issues one bonus share against one existing share, dividend amount would just double for it.
As per the new guidelines, PSUs with reserves and surplus equal to or more than ten times the paid up capital must issue bonus shares. Those whose reserves are equal to or more than five time the paid up capital, their boards are required to consider issuing bonus shares. In case, the boards decide against issuing shares, reasons must be furnished.
Data shows some CPSEs have accumulated huge reserves over the past years. For example, at end March 2016, BHEL’s reserves and surplus stood at Rs 17,681 crore, 36 times its paid-up capital (Rs 489 crore). Similarly, ONGC’s reserves and surplus of Rs 1,47,574 crore at the end of last fiscal was 34 times its paid-up capital of Rs 4,278 crore.
Of the nine companies, BPCL, Engineers India, IOC, PFC and REC, issued bonus shares in the ratio of 1:1. HPCL issued in the ratio of 2:1 and ONGC in 1:2. Oil India issued bonus shares in the ratio of 1:3 and Balmer Lawrie in 3 to 1.
The government’s stakes in 51 listed and unlisted companies, including Hindustan Unilever, Jaiprakash Associates and a host of Tata Group firms held through Suuti is estimated at more than Rs 50,000 crore.
However, after dithering for many years, the government initiated Suuti sale this year. In November, Suuti sold about 79.5 lakh shares representing 1.5 per cent stake in L&T, which helped the government realise Rs 2,100 crore. Institutional investors such as State Bank of India bought shares.

The government’s fiscal position remains stress-ed. Its telecom spectrum auction has fetched nearly Rs 35,000 crore, less than what had been budgeted.
The disclosures made under the income declaration scheme are also likely to be lowered by more than Rs 10,000 crore after a Hyderbad-based reatltor and its associates defaulted on tax payment over disclosed income under the scheme.
But, there is a silver lining in the cloud.
The rebound in the global oil market has revived the hope of the government selling its minority stakes in oil PSUs, including ONGC. The government had earlier wanted to bring ONGC to the market for stake sale in 2014. But, the crash in the oil market forced it to defer the plan.
After hitting historically low levels in January 2016, international crude oil prices have more than doubled now, which offers an opportunity for the government to sell minority stakes in ONGC and other oil PSUs. However, the government might not be able to complete the process in time to sell minority stake in the current fiscal.
So, the government needs to move fast on its disinvestment programme to raise enough resources to meet the fiscal deficit target, pegged at 3.5 per cent of GDP.
Noor Mohammad