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Unlisted PSUs in line for divestment

The government, which has set an ambitious disinvestment target for 2014-15, is considering offloading its holding in certain unlisted public sector undertakings (PSUs) without coming out with an initial public offering (IPO) or listing them.

According to people with the knowledge of the development, the finance ministry has sought feedback from the Ministry of Corporate Affairs (MCA) and the market regulator Securities and Exchange Board of India (Sebi) on the feasibility of the proposal.

The department of disinvestment (DoD) website has listed about 169 Central Public Sector Enterprise (CPSEs) which are unlisted.

The proposal is in early stages and the centre has not yet shortlisted the list of companies, where it can to sell minority stake to institutional investors, said sources.

For the current financial year, the government plans to raise around Rs 58,000 crore through disinvestments to help bridge the fiscal deficit. Of this, over Rs 43,000 crore will be raised by selling shares in CPSEs.

The centre has said to have asked to Sebi to suggest a mechanism for price discovery of unlisted companies. It has also directed the MCA for collating the financial data of unlisted PSUs.

“One of the priorities of the government is to set up a mechanism for price discovery for unlisted companies to unlock government’s stake in PSU entities,” said a senior finance ministry official.

The price discovery mechanism helps in determining the spot prices of companies. In an IPO, the price discovery is done through the book building process, where investors make bids at various prices in a set band. The price at which maximum bids are received is fixed as the allotment price.

For unlisted PSUs, the price discovery mechanism could be based on the financial performance, industry valuations and market feedback.

“If government is focusing on price discovery for unlisted firms then the focus should be on absolute disclosures about financials and the workings of the company. Government will be able to arrive at right valuation if the information about PSUs is readily available,” said Haldea.

Some experts believe that Sebi modify the institutional trading platform (ITP) to help the government pare its stake in unlisted PSUs without having to do an IPO.

The ITP programme, introduced last year, allows a company to list without an IPO. So far more than two dozen private companies have listed on this platform provided by the BSE and the National Stock Exchange (NSE). The system is aimed at providing an exit to private equity investors like angel and venture capital investors.

The disclosure and other regulatory requirements under ITP are lot more relaxed compared to listing through an IPO. The pricing on ITP takes place based on an order matching system.

“Ideal price discovery takes place when there is perfect competition. The endeavour should be to create an environment as close as to perfect competition in a market for any product, including securities, listed and unlisted,” said MS Sahoo, secretary, ICSI.

According to investment bankers, some of the unlisted PSUs where the government can unlock substantial value include Nuclear Power Corporation of India (NPCIL), which had networth of around Rs 27,000 crore in FY13. Also telecom services provide Bharat Sanchar Nigam (BSNL), which has networth of nearly Rs 60,000 crore.

The centre might also consider selling stake in companies like Hindustan Aeronautics (HAL) and Rashtriya Ispat Nigam, ahead of their IPOs.

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