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BW Businessworld

Missed Opportunities

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The government is watching the outcome of June 17 elections in Greece before beginning its ambitious Rs 30,000-crore divestment programme as poll results will stir course of the Euro-zone crisis that has impacted markets the worldover.

Considering volatile market conditions, the Rs 2,500-crore initial offer of RINL was delayed by at least three weeks on Tuesday on advice of merchant bankers UBS Securities India and Deutsche Equities (India) that early July launch of the issue may not yield desired results.

The government has more reason to worry specially after it failed to sell all of the shares in its Rs 12,325- crore auction of a five per cent stake in Oil and Natural Gas Corp in early March. This was an embarrassing setback in its effort to revive stock sales and trim a yawning fiscal deficit. The glitch-ridden auction saw just 98.3 per cent of the shares taken up. Media reports said state-run Life Insurance Corp of India (LIC) had bought a huge chunk of the shares.

Hard pressed for funds, the government on March 1 approved the proposal for expediting disinvestment through the buyback route under which blue chip state-owned companies will buy its stake. This is expected to help the government narrow its widening fiscal deficit. The proposal will allow the government, which has not been able to reach anywhere near the disinvestment target of Rs 40,000 crore in 2011-12, to raise funds by selling its stake in the PSU to the same undertaking.

Cancelled RINL Roadshows
A top company official said the pre-marketing roadshows, which were to be started with Mumbai from Tuesday, have been cancelled for the time being, but department of disinvestment is yet to communicate the company any fresh time-line.

The RINL issue, was slated to hit the domestic market on July 3 and kick-start the ambitious disinvestment process of the government for the current fiscal. The postponement of the issue is a bad start to the Rs 30,000 crore disinvestment target that the government has set for the current fiscal.

The successful journey of the issue in domestic bourses was critical for the government to line up other issues to meet the Rs 30,000 crore target and aim to bring down the widening fiscal deficit.

Greece Elections Second In 6 Weeks
Debt-ridden Greece is going for second election in just six weeks as the May election could not come out with a clear mandate for either Syriza party or the New Democracy.

Experts are not ruling out a third poll as well. "Merchant bankers for the RINL issue recently suggested the government to revise the marketing time-line and wait for the Greece elections. The election may also see the exit of Greece from the European Union. This will release a lot of pressure from other European Union nations," a source in the Department of Disinvestment said.

The outcome of the Greece election has a lot of bearing on the European economy in particular and the world economy in general. The European Union insisted that Greece go an austerity drive in lieu of a bailout package. Syriza party has vowed to cancel austerity plan, while New Democracy supports the bailout.

Global markets have been volatile since May in view of Greece election. High rate of volatility was seen across the world as the US, European, Asian and Indian markets declined by six per cent, seven per cent, 11 per cent and six per cent, respectively.

"Increased fluctuations in crude prices and the bullion and the Euro-dollar rate going to its 52-week low of 1.23 have led investors moving towards safer havens. The two-year US government treasury yield fell to 0.25 per cent whereas German bonds are yielding negative," he said.

Moreover, equity raising sentiment is negative as seen by 43 transactions being withdrawn from May 1 till date with three transactions that have been pulled from the Hong Kong markets last week alone totalling USD 1.6 billion, he added.

"Attempting a pre-RHP roadshow will affect the quality and quantity of meetings, feedback and resulting impact on indicative valuation and shadow book building," the official said.

It has lined up for around a dozen PSUs for disinvestment in the current fiscal which include SAIL, BHEL, Hindustan Copper, Oil India and Hindustan Aeronautics.

Last fiscal, due to volatile market conditions, the government had to postpone the sell off process and could raise only Rs 14,000 crore against a target of Rs 40,000 crore.

(With Agencies)