India may expand the use of private placements to sell stakes in state-owned companies in a bid to get better prices for its shares, according to officials with direct knowledge of the matter.
The government currently allows so-called qualified institutional placements, known as QIPs, only among public sector banks. The policy shift would allow dozens of other government-owned companies to sell directly to big investors, according to two officials, who asked not to be identified before a final decision is taken.
The move would come as Prime Minister Narendra Modi seeks more funds to build roads, ports and bridges in Asia’s third-largest economy when he presents his budget on February 29. India is on pace to miss its asset sale target for a sixth straight year, raising only about 20% of Rs695bn ($10bn) through January as lower commodity prices and volatile markets affected valuations.
Policymakers want an alternative to the current practice of notifying investors two days ahead of a sale to prevent speculators from driving down the share price, the officials said. Media leaks prior to the official announcement have often caused stock prices to fall in the weeks before a sale. The BSE on Friday said it cut the notice period to one day for so-called offer for sale and allowed retail investors to place their bids a day later.
Indian Oil Corp, the biggest stake sale of this financial year, lost 17% in the month before its sale on August 24, compared with an 8.4% decline in the benchmark index. Steel Authority of India and Coal India – the world’s biggest miner of the fuel – had similar experiences when they sold shares.
India has approvals to sell more shares to the public in over a dozen companies, including Coal India, Oil & Natural Gas Corp and NTPC, according to information available on a government website.
The government, which had previously avoided cherry-picking investors for share sales to avoid appearances of nepotism, is looking at all options used by private companies to tap the markets, the officials said. They are studying ways to keep the private placement process transparent, they said, adding that any decision would need cabinet approval. DS Malik, a finance ministry spokesman, didn’t answer two calls to his mobile phone.
A new strategic sale policy would be announced shortly, disinvestment secretary Neeraj Kumar Gupta said in an interview this month. With Modi’s administration poised to miss the divestment target, it has sought to raise cash by asking at least five state-run companies to buy back shares with their surplus cash of $12bn.
Modi faces the challenge of keeping next year’s budget deficit at 3.5% of the gross domestic product without cutting public spending. Tax revenues and stake sales are key to meeting that target and keeping investors interested in India after the rupee, sovereign bonds and stocks saw their worst month in four years.