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The government’s fiscal math is in a worrying state and it is likely that the
deficit target (4.6% FY12 GDP) could get overshot. The government has
also fallen behind on its disinvestment target and in order to kickstart the
process, media reports suggest that it has drawn up a new disinvestment
roadmap to raise INR460bn in the near term. We do not have full details
of the plan yet, but as per media reports, it essentially involves three
steps—monetisation of SUUTI holdings, strategic cross purchases by one
PSU into another, and buybacks by PSUs. In our view, steps such as
strategic cross holding could be a potential overhang given unrelated
diversion of cash and holding company discount on such investments. We
await more details from the Dept. of Disinvestment, but believe that
some of the steps, if implemented, could be directionally negative for the
PSU space. Stocks most likely to be impacted include Coal India, ONGC,
NTPC, SAIL, OIL and BHEL.
Government’s fiscal math in a muddle
Union Budget 2011 has set central government’s FY12 fiscal deficit target at ~4.6% of
GDP. In all likelihood, this target is likely to be overshot given the revenue shortfall and
higher‐than‐anticipated subsidy burden because of high crude prices. Problems are also
accentuated by the fact that given the volatile markets, the government’s budgeted
disinvestment target of INR400bn now looks a tall order. It has managed to generate a
mere INR25bn from disinvestments so far in the current fiscal. Thus, in an overall bid to
not stray too far from the budgeted target, it is trying to use various levers to shore up
finances. Accordingly, in an attempt to jump start its disinvestment strategy, the
government has published a white paper, essentially listing out three options for raising
capital.
Mulling three step formula to raise capital
Media reports suggest that the white paper on disinvestment lays down three methods of
disinvestment, mentioned below:
• Monetisation of Specified Undertaking of Unit Trust of India (SUUTI) holdings in
companies—expected to raise about INR230bn.
• Strategic cross holding purchases by one PSU into another—expected to raise about
INR135bn. Among a list of such proposed cross holding purchases include Coal India
acquiring a 5% stake in SAIL.
• Buyback by PSUs—expected to raise INR178bn. Names of companies currently doing
the rounds are ONGC, NTPC, SAIL, BHEL, Coal India, Oil India, Neyvelli Lignite, NALCO,
SJVNL and SCI.
This apart, the white paper also mentions a more longer term approach which entails
setting up a holding structure on the lines of a real estate company to monetize surplus
land.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The government’s fiscal math is in a worrying state and it is likely that the
deficit target (4.6% FY12 GDP) could get overshot. The government has
also fallen behind on its disinvestment target and in order to kickstart the
process, media reports suggest that it has drawn up a new disinvestment
roadmap to raise INR460bn in the near term. We do not have full details
of the plan yet, but as per media reports, it essentially involves three
steps—monetisation of SUUTI holdings, strategic cross purchases by one
PSU into another, and buybacks by PSUs. In our view, steps such as
strategic cross holding could be a potential overhang given unrelated
diversion of cash and holding company discount on such investments. We
await more details from the Dept. of Disinvestment, but believe that
some of the steps, if implemented, could be directionally negative for the
PSU space. Stocks most likely to be impacted include Coal India, ONGC,
NTPC, SAIL, OIL and BHEL.
Government’s fiscal math in a muddle
Union Budget 2011 has set central government’s FY12 fiscal deficit target at ~4.6% of
GDP. In all likelihood, this target is likely to be overshot given the revenue shortfall and
higher‐than‐anticipated subsidy burden because of high crude prices. Problems are also
accentuated by the fact that given the volatile markets, the government’s budgeted
disinvestment target of INR400bn now looks a tall order. It has managed to generate a
mere INR25bn from disinvestments so far in the current fiscal. Thus, in an overall bid to
not stray too far from the budgeted target, it is trying to use various levers to shore up
finances. Accordingly, in an attempt to jump start its disinvestment strategy, the
government has published a white paper, essentially listing out three options for raising
capital.
Mulling three step formula to raise capital
Media reports suggest that the white paper on disinvestment lays down three methods of
disinvestment, mentioned below:
• Monetisation of Specified Undertaking of Unit Trust of India (SUUTI) holdings in
companies—expected to raise about INR230bn.
• Strategic cross holding purchases by one PSU into another—expected to raise about
INR135bn. Among a list of such proposed cross holding purchases include Coal India
acquiring a 5% stake in SAIL.
• Buyback by PSUs—expected to raise INR178bn. Names of companies currently doing
the rounds are ONGC, NTPC, SAIL, BHEL, Coal India, Oil India, Neyvelli Lignite, NALCO,
SJVNL and SCI.
This apart, the white paper also mentions a more longer term approach which entails
setting up a holding structure on the lines of a real estate company to monetize surplus
land.
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