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This article is more than 2 year old.

Government aims big on ETFs; Cabinet nod to lower stake in CPSEs likely this month

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The government is aiming to receive almost Rs 45,000 crore from divestment via exchange-traded funds (ETFs) offerings in the fiscal year 2019-2020

Government aims big on ETFs; Cabinet nod to lower stake in CPSEs likely this month
The government is aiming to receive almost Rs 45,000 crore from divestment via exchange-traded funds (ETFs) offerings in the fiscal year 2019-2020, nearly 45 percent of the Rs 1.05 lakh crore target, sources told CNBC-TV18.
Last fiscal also, the government achieved almost 45 percent of the total disinvestment receipts via ETF offerings. Sources further said ETFs offering would continue to be one of the mainstays for achieving the disinvestment target this fiscal as well.
However, the government yet is not permitted to reduce its stakes in central public sector enterprises and public sector banks to below 52 percent levels. CPSE and PSU bank stocks are commonly held in the ETF baskets.
While the government's stake in blue chips like Indian Oil is at rock bottom 51.5 percent, it holds 52.68 percent in GAIL, 52 percent in NALCO, 55.37 percent in Power Grid, 56.41 percent in the NTPC.
BPCL, with state equity at 53.29 percent, has been picked up for a strategic sale altogether. Also, the government has exited from its SUUTI in Larsen & Toubro in the last Bharat 22 FFO.
The government has initiated the formal process of seeking the Cabinet’s nod to allow its shareholding to drop below 51 percent in select CPSEs. However, it will continue to retain management control through cross-holdings of other government-owned entities in the same CPSEs.
Sources told CNBC-TV18 that Cabinet's approval for reducing the stakeholding to below 51 percent in non-financial PSUs is likely to come this month. This is expected to provide the much needed flexibility for rebalancing the Bharat 22 and CPSE ETF baskets.
The government could even use a mix of policy options:
  • Lowering its stake in some of these companies to below 51 percent while retaining management control.
  • Replacing some of the shares in the ETF baskets with other CPSE stocks, or adding more bank stocks where the government shareholding is comfortably above 55 percent-56 percent levels.
  • So far, the government has garnered Rs 14,844 crore via the CPSE and the recently concluded Bharat 22 ETF FFOs, less than 15 percent of the total FY20 disinvestment target.
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