In my previous article (‘Distorting divestment’, FE, January 31, http://goo.gl/XnFxNm), the several curious, ingenious ways the government is inventing to meet the disinvestment target were examined. These included sale to state undertakings, buybacks, cross holdings, special dividends and ETF. The good news, though, has been that the government is finally planning to encash the shares held by SUUTI, though only partly, and that the stake sale in Hindustan Zinc and BALCO may finally materialise.
Disinvestment to a common man, as also to all who had made the policy, has for long meant diluting a small part of the government holding in PSUs by way of a capital market offering. The stated objective, on one hand, has been to broaden and deepen the capital market and, on the other, bring about more transparency and better corporate governance in PSUs that come subsequent to listing. That is the only way the government should move forward for divestments.
Specifically with reference to the SUUTI’s stake in three companies—full sale of all shares in Axis Bank, ITC and L&T, which together can rake in a huge R50,000 crore—should be pursued. For this, selling to FIIs should not be even on the radar. In the case of Axis, for example, FIIs are already holding 45% of the bank, and there is no justification to allow them to hold higher stake, though the government has already provided a felicitation clause by allowing FIIs to go up from 49% to 62%. FIIs are not bringing any strategic value to the bank, they are pure financial investors. We continuously moan the hijacking of the Indian capital market by FIIs, and we also moan the lack of retail investors in our market. Here is the opportunity to make good.
The total stake held by SUUTI in all three companies, and for that matter in all listed PSUs, should be entirely sold to the retail investors. This is the best ever opportunity to get retail household savings into the market, with many first time investors also likely to join in. All these are blue-chip companies and retail would lap these up … a sure-shot way of reviving the interest of the retail investors in the capital market. A good discount of 10% on the market price should be offered to them, and to prevent flipping, a one-month lock-in could be stipulated.
In fact, the focus should only be retail for all divestments. That is