disinvestments

8/10/2019 Disinvestments

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Disinvestments in Pub

Sector Undertakings


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Next in the L ine

In the pipeline to go next for stake sale could be

Power Finance Corp

Rural Electrification Corp

Tehri Hydro Development Corp (THDC)

SJVN Limited (Satluj Jal Vidyut Nigam Limited)


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Disinvestment

Disinvestment can also be defined as the action of an org

government) selling or liquidating an asset or subsidiary. It is a

as divestmentor divestiture.

In most contexts, disinvestment typically refers to sale from th

partly or fully, of a government-owned enterprise.


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Objectives of Disinvestment

The following main objectives of disinvestments are:

To reduce the financial burden on the Government

To improve public finances

To introduce, competition and market discipline

To fund growth

To encourage wider share of ownership

To depoliticize non-essential services


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Benefi ts of Disinvestments

For the Government

A successful disinvestment is critical for the government that ha

of 4.1 per cent for its fiscal deficit, a figure that many foreign a

ambitious and may be difficult to meet.

Match SEBI rules that stipulate that promoters (in this case, th

should not hold more than 75 per cent in any listed company.

Currently government owns 68.94 per cent in ONGC 89.65 pe

India and 85.96 per cent in NHPC.


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A leaner government with reduction in the number of m

bureaucrats.

The government can focus more on core activities such as i

defence, education, healthcare, and law and order.


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For the Markets and Economy

Brings about greater efficiencies for the economy and markets

For the Taxpayers

Letting go of these assets is best in the long term interest of th

the current yield on these investments in abysmally low. Ev

from the sale are not utilised for bridging fiscal deficit,

utilisation of these 'stuck' funds would be into critical se

healthcare, education and infrastructure

Unlocking of shareholder (in this case the citizens of India) va


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For the Employees

Monetary gains through ESOPs and preferential issue of shares

Pay rises, as has been seen in past divestments

Greater opportunities and avenues for career growth- further

generation


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Disinvestment Types:

1. Minority Disinvestment

2. Majority Disinvestment

3. Complete Privatization


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M inority Disinvestment

A minority disinvestment is one such that, at the end of it, the g

retains a majority stake in the company, typically greater than

ensuring management control.

Examples of minority sales via auctioning to institutions go ba

early and mid 90s. Some of them were Andrew Yule & Co. L

Ltd. etc. Examples of minority sales via Offer for Sale incl

issues of Power Grid Corp. of India Ltd., Rural Electrification C

NTPC Ltd., NHPC Ltd. etc.


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Major i ty Disinvestment

A majority disinvestment is one in which the government, post

retains a minority stake in the company i.e. it sells off a majority

Historically, majority disinvestments have been typically ma

partners. These partners could be other CPSEs themselves, a

being BRPL to IOC, MRL to IOC, and KRL to BPCL.

Again, like in the case of minority disinvestment, the stak

offloaded by way of an Offer for Sale, separately or in conjunct

to a strategic partner.


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Complete Privatization

Complete privatization is a form of majority disinvestment wherein 100

company is passed on to a buyer. Examples of this include 18 hotel proper

3 hotel properties of HCI.

Disinvestment and Privatization are often loosely used interchangeably. Th

vital difference between the two.

Disinvestment may or may not result in Privatization. When the Governme

the shares carrying voting powers while selling the remaining to a strategi

have disinvested, but would not have privatized,because with 26%, it c

decisions for which generally a special resolution (three-fourths majority) i


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Privatization vs Disinvestment

Privatization implies a change in ownership, resulting in a change in m

privatization of public sector enterprises will occur only when govt. sells mits ownership to private entrepreneurs.

Disinvestment on the other hand, has a much wider connotation as it cou

dilution of govt. stake to a level that result in a transfer of management

limited to such a level as would permit govt. to retain control over the organ

Disinvestment beyond 50% involves transfer of management, where as dis

50% would result in the govt. continuing to have a major say in the underta


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THANK YOU

disinvestments

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