Letting go, slowly: Govt to divest up to 25% stake in 4 defence firms via IPO floats

In a major boost to the Narendra Modi administration's disinvestment drive to sell equity stakes in profitable PSUs to raise funds, the government is considering selling up to 25 percent of its equity stakes in four state-run defence companies under the control of the department of defence through IPOs (initial public offerings) for sale of shares, the Financial Express reported on Friday.

The government is looking to sell stakes in Mazagon Dock Ltd, Bharat Dynamics Ltd, Garden Reach Shipbuilders & Engineers Ltd and Mishra Dhatu Nigam Ltd. It has invited proposals for the IPO by 3 pm on August 18, the daily reported.

Prime Minister Narendra Modi's government has been divesting strategic stake in several public and private companies to meet its ambitious Rs 72,500 crore ($11.38 billion) divestment target during the year to March 2018.

The government raised Rs 46,247 crore through disinvestment In the last financial year 2016-17, the highest ever amount earned by sale of equity stake in PSUs, though falling short of the original target, as was expected.

In this financial year, the government has sold equity stakes in Hindustan Copper through a recently concluded OFS (offer for sale), Cochin Shipyard, HUDCO, L&T (held through SUUTI) and Dredging Corporation, among others.

An intensifying process

In fiscal 2018, the government plans to sell 10 percent equity stake each in three major state-run railway companies IRCTC, Ircon and IRFC via IPOs. The Union Cabinet has also approved listing of five state-run general insurance companies, which is likely to begin only in the next financial year with the first listing possible by September-October. The government is also reportedly looking at selling 10 percent equity stake each in capital goods major Bharat Heavy Electricals Ltd and energy company Oil India Ltd.

Financial portal Moneycontrol.com said on Friday that the government is gradually selling its stake in companies held through SUUTI (Specified Undertaking of Unit Trust of India) in the open market. The government has mulled selling SUUTI's equity holdings several times, and is also reportedly considering including SUUTI stakes in its proposed next CPSE ETF – the exchange-traded fund of public sector enterprises – which it plans to launch in the current financial year 2017-18, Moneycontrol said.

In June, the government sold 2.5 percent equity stake in engineering major Larsen & Toubro held through its investment arm SUUTI for more than Rs 4,000 crore. In February, SUUTI sold 2 percent from its 11.7 percent equity stake held in tobacco major ITC Ltd in a block deal for reportedly Rs 6,700 crore. State-run insurer AMC Life Insurance Corp of India was the buyer in the deal.

Previously, in 2014, SUUTI sold 9 percent equity stake in Axis Bank, raising Rs 5,500 crore in the process.