Disinvestment Current Affairs - 2019
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The Union Finance Ministry may come out with Rs. 10,000 crore follow-on fund offer of Bharat-22 exchange traded fund (ETF) as it looks to dilute stake in Coal India Limited (CIL) to meet the minimum public holding norm. Besides, it is also keen to takeETF route to sell off government shares held through Specified Undertaking of the Unit Trust of India in private companies (SUUTI)—ITC, Axis Bank and L&T.
The Union Government is planning to raise Rs. 80,000 crore in current fiscal from disinvestment, lower than over Rs. 1 trillion raised in 2017. The Bharat-22 ETF was launched in November 2017 to meet some part of this disinterment target. It comprises shares of 22 companies, including public sector undertakings (PSUs), public sector banks (PSBs), ITC, Axis Bank and L&T. The fund so far has garnered bids to tune of Rs.32,000 crore, although government retained only Rs. 14,500 crore.
Prior to the launch of Bharat-22 ETF, which has diversified portfolio, Union Government had floated CPSE ETF comprising stocks of 10 bluechip PSUs—ONGC, Coal India, IOC, GAIL (India), Oil India, PFC, Bharat Electronics, REC, Engineers India and Container Corporation of India. Through the CPSE ETF, the government had raised Rs. 11,500 crore in three tranches
Exchange Traded Fund (ETF)
ETF is index funds that offer security of fund and liquidity of stock listed and traded on exchanges. Much like index funds they mirror index, commodity, bonds or basket of assets. They are similar to mutual funds in certain manner but are more liquid as they can be sold quickly on stock exchanges like shares.
The ETFs trading value is based on the net asset value of the underlying stocks that it represents. Their price changes daily as they are traded throughout the day. ETF route is considered as safer mode of disinvestment as it shields investors against stock market volatility.
The Central Government has raised Rs. 1,200 crore by divesting 9.2% of paid-up capital in National Aluminum Company Ltd. (NALCO). With this disinvestment, Government’s shareholding in NALCO has become 65.37%.
Disinvestment involves the sale of Government’s share in the Public Sector Undertakings. In disinvestment, the government sells only a part of the equity which is essentially less than 51% so that ownership and management rights can be possessed by the Government itself.
Department of Investment and Public Asset Management (DIPAM), Ministry of Finance, has set a record target of Rs. 72,500 crore to be realized through disinvestment in this fiscal. This target follows the 2016-17 all-time high achievement of Rs. 46,247 crore.
For the fourth time in a row, retail investors out-performed institutional investors. It shows that retail investor backs disinvestments of CPSEs. In fact it satisfies one of the objectives of disinvestment policy of the government which aims to make PSU shareholding as broad-based as possible so that nation’s wealth is shared by its citizens. In this disinvestment exercise, the government for the first time has used the green shoe option (over-subscription option) since the modified OFS procedure has been put in place by SEBI in 2016. DIPAM exercised the green shoe option owing to the overwhelming response from the market.
Greenshoe option is a special provision in an IPO prospectus. Green shoe option permits the underwriters to sell more share to the investors than originally planned by the issuer. This option is exercised if the demand for a security issue is higher than the expected.
The Department of Disinvestment was set up as a separate Department on 10th December 1999 and functions as one of the Departments under the Ministry of Finance since 2004. In 2016, the Department of Disinvestment was renamed as Department of Investment and Public Asset Management (DIPAM). DIPAM advises the Union Government in the matters of the financial restructuring of PSUs and also for attracting investment through capital markets. It deals with all matters relating to the sale of Union Government’s equity through private placement or offer for sale or any other mode in the erstwhile Central PSUs.
National Aluminium Company Limited (NALCO) is a Navratna CPSE functioning under Ministry of Mines. It was established on 7th January 1981. It has integrated and diversified operations in mining, metal and power.