Disinvestment Current Affairs - 2020

India Russia sign first ever Term Contract to import crude oil to India

On February 5, 2020, the Minister of Petroleum and Natural Gas Shri Dharmendra Pradhan and the Chairman of Rosneft (Russia’s largest oil producing company) signed the first ever term contract. According to the contract India will import 2 million metric tonnes of Urals grade crude oil.

Highlights

The agreement was signed between IOCL and Rosneft. The companies discussed on energy cooperation and hydrocarbon enhancement.

Rosneft is the largest oil producing company in Russia. The company is extended over 20 countries in the world. The company is to bid in the disinvestment of BPCL (Bharat Petroleum Corporation Limited). On November 20, 2019, the Union cabinet approved to privatize BPCL selling 52.98% of its stakes to private sector.

India and Russia Oil Ties

After the crude oil agreement, India and Russia are also looking for ways to sign agreements to bring LNG (Liquefied Natural Gas) supplies from Russia. Russia is estimated to posses 10 to 14 billion tonnes of oil and 15 trillion cubic metres of gas. The rich resources of Russia extends till Serbia in Pacific Ocean in the far East region.

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Government to launch first fixed income ETF of bluechip PSUs

Union Government will launch India’s first fixed income Exchange Traded Fund (ETF) comprising debt securities of large central public sector enterprises (PSUs) by mid-December 2019. It will comprise only AAA-rated papers of the PSU companies. It is expected to have a size of Rs 15,000 crore to Rs 20,000 crore. It is expected to improve liquidity in corporate bond market, smoothen borrowing plans of the participating state-owned companies and enhance investor base.

About India’s 1st fixed income ETF

The proposed debt ETF will be first large fund in India that will provide retail investors convenience to invest in fixed income product comprising a basket of securities, without need to study individual bond issues.

It may be comprising of corporate debt securities in the form of bonds, debentures, credit-linked note, promissory notes as underlying instruments. Large PSUs are expected to participate in the maiden debt ETF.

Department of Investment and Public Asset Management (DIPAM) has appointed Edelweiss Asset Management as the asset manager for this proposed debt ETF. The tax treatment of this debt ETF will be same as that of debt mutual funds.

Benefits of this debt ETF: It will provide safe investment option, alongside high liquidity. It will also help in deepening the corporate bond market and will allow PSUs to borrow from the market. As these ETF units will be listed on exchanges, it will provide new options to investors to own securities of government-owned PSUs along with facility of overnight liquidity. Moreover, it will provide investors higher yield than on fixed deposits. Compared with bank fixed deposits that generate a post-tax return of around 5.5%, this debt ETF can provide return of over 7% for the investors.

Background

In the 2018-19 Union Budget, Union Government had announced that DIPAM is planning to come out with debt ETF, which will help PSUs better plan their borrowing needs and capital expenditure. At present there are number of gold and equity ETFs in markets, but there are no debt ETFs, barring two government securities-based ETF that have not generated much investor interest. In 2018-19, Union Government had launched Bharat-22 ETF and CPSE ETF comprising stake sale in a basket of 22 and 11 government companies, respectively. These were used by government to divest its equity in state-owned companies. It had helped government to raise Rs 10,000 crore through CPSE-ETF and another Rs 4,368 crore through Bharat-22 ETF.

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