In a bold move, the government has decided to reduce its stake in PSUs and use the proceeds to meet the capital expenditure of its pet social security programs.

In a bid to bring in fiscal prudence and meet the capital expendi- ture of its social sector programs, the Government of India has recently unveiled a grand plan to divest its stake in Public Sector Undertakings (PSUs). This is indeed a gutsy step which would definitely reduce the government's dependence on market borrowings which it resorted to last year to shield the economy from the damages emanating from the global financial crisis. The move has been welcomed by the investor community, as they feel that the government has returned to the path of bold economic reforms which they longed for. And if the estimated sale happens, the present government could break the disinvestment record set by the then government which raised $6 bn (around Rs 28,000 cr) between 1999 and 2004 through sale of government holding in PSUs.

The Cabinet Committee on Economic Affairs (CCEA) has recently directed the PSUs to list their shares on the stock exchange. It has asked all unlisted PSUs with positive net worth, no accumulated losses and a net profit track record in the preceding three consecutive years to get listed. Additionally, PSUs which are already listed, but have less than 10% public holding, will have to increase the size of their public holding to at least 10% of their capital. This decision of the government is in conformity with that of Sebi guidelines, which have stipulated that listed companies have to divest a minimum of 10% of the equity to the public. Both these decisions are likely to witness a slew of equity offerings including Follow-on Public Offerings (FPOs). The eligible candidates include many giant companies such as National Mining Development Corporation (NMDC), Minerals and Metals Trading Corporation of India Ltd. (MMTC), Neyveli Lignite Corporation, Rashtriya Chemicals and Fertilizers, National Fertilizers Limited, Coal India, Bharat Sanchar Nigam Limited (BSNL), HLL Lifecare and Engineers India. However, no time-frame has been specified for PSUs to comply with the government's decision, but the decisions are likely to be governed by market conditions.

The Analyst Magazine, PSU Disinvestments, Social Security Programs, Public Sector Undertakings, PSUs, Economic Reforms, Global Financial Crisis, National Mining Development Corporation, NMDC, Bharat Sanchar Nigam Limited, BSNL, Government Resources, National Investment Fund, Market Capitalization.