Government eyes auctions to meet Rs 300 bn stake sale target

The union government plans to kickstart stake sales in state-run companies in June - preferably through the auction of shares - to meet a target of Rs 300 billion set for this fiscal year, the official in charge of disinvestment said on Monday.

Raising revenue from selling stakes in state-run firms, along with cutting subsidies, is seen as key to India's efforts to repair its damaged finances. India aims to lower the fiscal deficit to 5.1 per cent in 2012/13, after it blew out to 5.9 per cent last year.

"When you push an FPO (follow-on public offering), the market prices come under pressure. Hopefully, we will go more for ONGC-type auctions," Mohd. Haleem Khan, who heads the government's share sale programme in the ministry of finance, told Reuters in an interview.

Although India's $2.6 billion auction of shares in the Oil and Natural Gas Corporation in March did not attract many institutional investors, the government was able to direct state-run Life Insurance Corp to pick up a large stake.

Khan defended the ONGC sale, which even some government officials said was badly handled. He said the government got the price it was aiming for.

In the 2011/12 fiscal year, the government raised just 140 billion rupees from share sales in state companies, well short of its 400 billion rupee target. The government dragged its feet on the offerings because of unfavourable market conditions.

Indian equities were one of the worst performers in 2011, with the Sensex shedding more than a quarter. So far this year, the index has risen about 12 per cent.

"Depending upon how things unfold in a month or two, some FPOs can also be looked into, like Oil India, BHEL, MMTC, SAIL, Neyveli Lignite, NALCO," Khan said.

Other probable candidates include Hindustan Aeronautics Ltd and Hindustan Copper, he said, but declined to elaborate on their line-up and timing.

Foreign investors have been wary over the slow pace of reforms in India. A recent budget proposal to retroactively tax long-completed mergers, which potentially puts companies like Vodafone Plc back on the hook, have further hurt market sentiments.

"The earliest period to look forward to will be June," Khan said, when asked when the stake sales would begin.

"By that time, a lot of debates and confusion which have got into the scheme of things - they will get sorted out," Khan said, adding that a rate cut by the Reserve Bank of India (RBI) would also help revive market sentiment.

The RBI is widely expected to cut repo rates by 25 basis points to 8.25 per cent on Tuesday, for the first time in three years, in an attempt to lift sagging growth.

Khan also said the government would consider conducting auctions on a single exchange. The ONGC auction was carried out simultaneously on the National Stock Exchange and the Bombay Stock Exchange, leading to some confusion and glitches.

"What we are very sure about is that we will not have two auction platforms," he said.

"Another thing which people have suggested is that the whole day auction is not required. I think two to three hours should be a good time."

Copyright @Thomson Reuters 2012