SAIL stake sale good augury for future

The government’s disinvestment programme has got a boost with the successful sale of 5 per cent of its stake in the Steel Authority of India (SAIL) last week. The SAIL stake sale has opened the disinvestment season and the good response received from investors should increase the government’s confidence.

It has set a target of raising Rs 43,425 crore through selling stakes in public sector undertakings (PSUs) during the current fiscal. The target may look ambitious because in the past few years, the proceeds from disinvestment have fallen short of targets.

Last year, the receipts were only about Rs 16,000 crore against a target of Rs 40,000 crore. The record was not very different in the previous years with the receipts ranging from 45-80 per cent of targets. In many cases, the programme had to be supported by government-controlled institutions like the LIC. 

But the scenario may be different this year with the stock market indices ruling at all-time highs and investors, including foreign and Indian financial institutions and individuals, showing greater interest in buying shares of good companies, including PSUs.

Some of the PSUs offer good value for money. Disinvestment and the resulting greater public participation in their management should increase their attractiveness. A bigger share for the public in these companies should lead to greater accountability in their functioning. In the case of SAIL, the government plan is to raise Rs 1,768 crore and bring its holding down to 75 per cent.

The SAIL disinvestment method was also innovative as it adopted the auction route which is cheaper and speedier than earlier methods like follow-on-public offers. The fact that it was oversubscribed two times showed a good level of investor interest.

The allocation of 10 per cent of the shares for retail investors and the discount offered to them were received well as the oversubscription in the segment was more than that in the general category.

Greater retail participation is important because it spreads the share-holding in the company more widely and ensures that small investors, who often get short shrift in the market, get a better deal. It is also good for the stability of the market and of the company’s share prices.

The SAIL disinvestment is to be followed by some big ticket stake sales of bigger companies like the ONGC and Coal India. There is only small window of three months to go through the programme but the success with SAIL may be an indication that other offers will be well received. A good disinvestment performance will help much to improve the fiscal situation.

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