Govt well equipped for disinvestment targets

Mon, 4 Feb Pre-Open

   Previous Close   

   09:30 am   

   11:30 am   

   01:30 pm   

   Closing   

It was less than a year ago when the Life Insurance Corporation of India (LIC) was in the news for the wrong reasons. The headlines making rounds back then revolved around the safety of the insurer's policyholders considering that it had bailed out some of the government's disinvestment programs. Stating that it believed in the long term prospects of the companies it invested in, LIC seemed to defend its actions. However, private investors believed otherwise. Pricing issues and the poor prospects were cited as reasons for lack of private investor participation.

In the year till date, the government has raised only Rs 67 bn through disinvestments. The target for the fiscal year FY13 was set at Rs 300 bn. The government recently announced it expects to raise Rs 270 bn this fiscal. As such, the government expects to raise about Rs 200 bn over the next two months. Last year, it raised Rs 140 bn, a small amount as compared to a full year target of Rs 400 bn.

With such large amounts to be raised this year, the cash strapped government - with its back against the wall - would not want to take any chances. containing the fiscal deficit - which stands at 5.3% of the GDP - is high on the government's agenda. And the divestment plan is one of the many key aspects towards doing the same.

The government is offering shares of major public sector undertakings such as Oil India, National Thermal Power Corporation (NTPC) and Bharat Heavy Electricals (BHEL) for sale. Certain reforms have been announced in recent times which would favour the long term prospects of some of these companies. Also, with Oil India's offer for sale price being at a discount to the price as of 30th January, the government seems to have addressed the concerns relating to the pricing issues as well. While one would assume these two developments would be good enough factors for generating private investor interest and participation, the government does not seem to want to take chances.

LIC's key role

LIC is expected to be the early bidder for these issues. This move is expected to act as an assurance, thereby drawing the skeptical investors towards these issues. With cash funds to the tune of Rs 250 bn generated from sale proceeds (as against Rs 170 bn last year) LIC itself is well prepared for the endeavour.

All one can gauge from these developments is that this time around the government with the help of LIC has take adequate steps to ensure that the disinvestment target is well achieved.