Secretary Disinvestment briefs media on listing of CPSUS on stock exchanges
Following is the text of the opening remarks made by the Secretary, Disinvestment Shri Sunil Mitra at a media briefing here today:
“The policy guidelines on disinvestment stipulated in President’s Address to the Joint Session of Parliament on 4th June and reiterated in Finance Minister’s Budget Speech on 6th July, require the development of “people ownership” of CPSUs to share in their wealth and prosperity, while retaining ownership and control with Government.
v Listing CPSUs on Stock Exchanges
The Government, on 5th November, 2009 approved an action plan for disinvesting Government equity in profit making CPSUs i.e. already listed profitable CPSUs, not meeting the mandatory public shareholding of 10%, to be made compliant and list all profit making CPSUs, through Public Offerings, out of Government shareholding or issue of Fresh Equity by the company or in conjunction.
v Why Listing
Ø To unlock greater shareholder value in the CPSUs through:
ü Enhanced corporate governance with higher disclosures which brings greater transparency and equity in operations with higher management accountability; and
ü Direct “people ownership” enforces higher levels of public scrutiny and the expectations of investors require management to perform efficiently.
v Benefits of Listing:
ü Availability of good quality PSU shares for trading provides depth and liquidity to market that has a stabilizing influence.
ü Direct “people ownership” effectively enables public to share the prosperity of CPSUs.
ü Indirect “people ownership” is achieved through Mutual Funds and Insurance Companies’ participation in Public Offerings.
v Results of Listing
ü The aggregate post-listing performance of large CPSUs, show impressive growth in sales, assets and dividends – aspects that benefits Government.
ü The wages, salaries and bonus of CPSUs post-listing, reflect impressive growth – aspects significant to employees.
ü The substantial increase in profitability and market capitalization post-listing, enhance Enterprise Value significantly - advantaging investors.
ü The value of Government’s residual shareholding in such CPSUs increases substantially. Recent three representative instances are cited below: -
Ø Disinvestment of 5.25% equity in NTPC in 2004 facilitating listing, resulted in an inflow of around Rs.2,700 crore. Further disinvestment of 5% equity is expected to raise over 3 times the amount raised earlier due to increase in the value post-listing.
Ø The enterprise value of NHPC increased from a pre-IPO value of Rs.18,280 crore to Rs.37,702 crore post-listing (125%). The value of residual Government equity after Public Offer of 10% shares has increased from Rs.18,280 crore to Rs.32,561 crore (94 %); and
Ø The Enterprise Value of Oil India increased from a pre-IPO value of Rs.9,844 crore to Rs.27,219 crore post-listing (180%).
ü The listing route for disinvestment thus represents a Win – Win situation for all stakeholders.
v Way Ahead
The Department of Disinvestment will begin Inter-Ministerial consultations to identify CPSUs for disinvestment. As each CPSU has different capital structures, financial strength and differing status in compliance with mandatory listing requirements, each disinvestment will be considered on a case-by-case basis for approval by Government.
v Use of Disinvestment Proceeds
In view of the deceleration of GDP growth due to global economic downturn coupled with unprecedented drought this summer, we are facing a reduced budgetary resource generation possibility. To ensure that this does not negatively impact the growth of economy; Government has approved one-time exemption permitting full utilization of disinvestment proceeds deposited in the National Investment Fund, over this and the next two Financial Years, in meeting the capital expenditure requirements of selected social sector programmes decided by the Planning Commission/Department of Expenditure. The status quo ante will be restored from April 2012.
v The unlocking of the dormant wealth of our CPSUs and their channelization for capital expenditure in social sector schemes, will stimulate economic growth with benefits percolating to the masses.”