Government stake to fall below 51 pc in bluechip PSUs to boost disinvestment

New Delhi, April 28: Government proposes to offload substantial portion of its stake in select blue chip companies this year to meet higher disinvestment target even though the exercise will bring down its holding below 51 per cent level, the minimum holding required for an entity to qualify as a central public sector enterprise (CPSE).

Officials in Department of Investment and Public Asset Management (DIPAM) said that market regulator SEBI is expected to soon issue policy guidelines on Differential Voting Rights (DVR) that will allow promoters to raise finds without dilution of control. Once these regulations are in place, government could consider divesting higher stake in CPSEs without losing control or changing the PSU character of an entity.

At present there are more than two dozen CPSEs that are widely held by the public with government stake of less than or close to 60 per cent. These include maharatna and navratna CPSEs like Engineers India Ltd (EIL-52%), Indian Oil Corporation (IOC-52.18%), Bharat Petroleum Corporation (BPCL-53.29), Gail India (52.64%), Oil and Natural Gas Corporation (ONGC-64.25%), Power Finance Corporation (PFC-59.05%), Powergrid Corporation (PGCIL-55.37%), NTPC, Shipping Corporation of India (SCI-63.75%), Bharat Heavy Electricals (BHEL-63.17%), NBCC (68.18%), Container Corporation (Concor - 54.80%).

If government sells more of its equity in these entities it could raise its disinvestment proceeds easily from the market without looking at other instruments like share buyback, new issues of ETFs or higher dividend payout from PSUs including declaration of special dividend.

This would also eliminate pressure on achieving disinvestment target, as even a small issue by a bluechip PSUs can get better realisation for government shares. The shares of most of these companies have got good valuation from the market. Government has set disinvestment target of Rs 90,000 crore for FY20.

"Golden share or DVR could be first step for the government to bring down its holding in several non-strategic and non-core PSUs. This could be followed by government changing the definition of PSUs itself by mandating lower than 51 per cent government holding," said a finance ministry official asking not to be named.

Last month market regulator SEBI issued consultation paper on DVR allowing companies to issue shares having rights disproportionate to their economic ownership.

In India, DVR shares with inferior voting rights (Fractional Rights/FR) or lower voting rights is already permitted by the Securities and Exchange Board of India. Now, SEBI is introducing DVR shares with Superior Voting Rights (SR) or higher voting rights along with FR.

DVR regulations are expected to be introduced quickly as the Prime Minister's Office (PMO) has also favoured such a move. Officials of ministry of corporate affairs (MCA) and the finance ministry are also discussing DVR regulations and how it could be applied in the case of PSUs. The changes would implemented for PSU after the new government takes charge at the centre.

DIPAM officials said once DVR structure is formalised, they could also look at using this structure to scale up disinvestment targets as in most blue chip CPSEs the level of government holding is close to 51 per cent.