Business | Economy
India expected to revive privatisation campaign
Emboldened by winning a confidence vote, India's government is expected to revive a privatisation drive, but a looming election means it will only have time for a few small sales rather than any jumbo ones.
- Reuters
- Published: 23:41 July 25, 2008
Mumbai/New Delhi: Emboldened by winning a confidence vote, India's government is expected to revive a privatisation drive, but a looming election means it will only have time for a few small sales rather than any jumbo ones.
The government could do with the cash to offset a hefty subsidy bill that is pressuring its finances, but public offerings of $2 billion or bigger could not be completed ahead of national elections that have to be held by May 2009, bankers say.
A major headwind is weak investor appetite following a 30 per cent slump in the stock market this year. The stock market may only be able to absorb offers of up to $500 million, they said.
D.K. Joshi, principal economist at ratings agency Crisil, said the government would offer some stake sales to offset a widening fiscal gap, which rating agencies say could hit 9 per cent of GDP this year from a projected 5.5 per cent in 2007-08.
"Three to four companies are possible and it could provide funds for infrastructure spending as during times of fiscal stress investment in infrastructure suffers," Joshi said.
"But the timing from the market perspective may not be right as prices are low now and investor appetite is not there in a big way. So we will have to see how they go along."
Newspapers say plans for a jumbo $10 billion initial public offering from Bharat Sanchar Nigam Ltd, the top telecom firm by total subscribers, are being dusted off.
But senior bankers say a deal that big is unlikely ahead of the elections.
On the other hand, the sale of some of a government holding of 67.7 per cent in Bharat Heavy Electricals, India's biggest electrical engineering firm, could be on the list of possibles, analysts said.
Repeated previous attempts to sell part of the holding were blocked by the coalition's communist allies. They dropped their support for the coalition, prompting the vote of confidence this week.
Small stakes in listed firms such as Neyveli Lignite, NTPC and National Aluminium, are also possible, analysts say.
"I don't expect $2 billion worth of transactions from a single company," said a senior banker. But offers of Rs3 billion to Rs20 billion ($70 million to $470 million) were possible in the next three to four months.
The government of Manmohan Singh - the original architect of India's economic liberalisation started in the 1990s - has struggled to sell off state assets since coming to power in 2004.
Political pressure
Under pressure from its communist allies, the coalition scrapped the privatisation ministry, said only loss-making firms would be sold or closed, and it pledged to keep so-called jewels such as Oil and Natural Gas Corp in public hands.
Its communist allies let it sell 10.5 per cent in National Thermal Power Corp, which raised about $1.2 billion, and offload its residual stake in carmaker Maruti Udyog, now called Maruti Suzuki India.
But 2006-07 receipts from stake sales were zero and in 2007-08 that rose to a modest Rs23.7 billion ($560 million).
Now that it has split from the communists and found new political supporters more amenable to privatisation it faces another potential problem - the stock market.
Up to January, India's IPO market was thriving. But falling stocks forced mutual fund manager UTI Asset Management this month to defer a $480 million share sale, reflecting weak investor sentiment globally over the state of the world economy.
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