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MoF considers new ways to meet disinvestment target - Views on News from Equitymaster
 
 
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  • Nov 12, 1999

    MoF considers new ways to meet disinvestment target

    According to newspaper reports, the finance ministry (MoF) is once again toying with the idea of floating a special purpose vehicle or a special trust to enable the government to off-load shares of public sector units (PSUs) as part of their privatisation programme.

    Under the special purpose vehicle (SPV) method, the government (administrative ministry) will transfer stakes that it wishes to divest to the SPV. The SPV will borrow money from the government to purchase these shares at an agreed price. Later, as and when it is feasible, the SPV will divest its holdings in the market. The money raised will be used to repay the borrowings and if any profit were to be generated it would be shared between the concerned ministries.

    Under the trust option, the government's entire holding in companies that are to be privatised is to be transferred to a trust National Shareholding Trust. The trust will be professionally managed and this is expected to generate investor interest in PSU stocks.

    The government, it seems, is once again trying to meet the disinvestment target of Rs 100 bn by dubious means. In the SPV option there will be no net cash inflows atleast in the current year, and this will worsen the government's cash position, even though the fiscal deficit will stand reduced. The second option too would not lead to cash inflows in the near term.

    The investor interest in Indian companies is apparent from the successful divestment of stakes in a number of PSUs over the last couple of years. The reason for considering alternative options is the lack of political will to divest stakes in the open market as is planned in the case of Indian Petrochemicals Limited (IPCL). This method will generate cash and also alleviate the government's fiscal deficit.

     

     

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