Falling crude prices is one of the main reasons for the ONGC divestment getting delayed, Johri said
The government will fast track the approval process for divestment in select PSU bluechips, Disinvestment Secretary Aradhana Johri said in an interview to CNBC-TV18 Monday.
The government has set a divestment target of Rs 69,500 crore for this fiscal in the Budget, and Johri felt this was achievable as every single stock on offer were bluechips.
She does not see another disinvestment in Coal India for at least the next six months.
Falling crude prices is one of the main reasons for the ONGC divestment getting delayed, she said.
Johri said the Central Public Sector Enterprise (CPSE) exchange traded fund will be revamped so as to make it more investor friendly.
Below is the transcript of Aradhana Johri’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: What are your key takeaways from the response to the Rural Electrification Corporation (REC) offer?
A: First of all I would say that the stocks that we have on offer are all blue chips, they are all excellent deals for people to buy and REC is no exception. Second, I would say that yes, we have a big target this year and we have started early because we have to give our best shot. Of course market conditions are important and we hope the market will pickup.
Third, REC like many others, we hope will follow. There is a lot of demand, so in this offer for sale (OFS) we got a demand a very early and we were fully subscribed at about 10:20. It is like a very good cycle that builds up because then the retail investors got confidence and later on the price we got was very much above our reserve price. It is very heartening for all of us.
Sonia: Can you give us an indication of which are the companies that are lined up for disinvestment in the next three to six months?
A: I will not be able to tell you the companies. You will appreciate that it is market sensitive information. However, I do want to tell you that we have a lot of companies lined up. We are going to fast-track our approvals process and wait for the market because some of them, the market doesn’t look so good today; some of them the market looks good today. So, we will have a lot of companies lined up.
Sonia: The Oil and Natural Gas Corporation (ONGC) divestment was the big expectation at least in the last three-six months and that did not come through because of, perhaps, the fall that we have seen in crude prices, market conditions etc. How long will the ONGC and the Indian Oil Corporation (IOC) divestment get delayed? Can we expect something in the next six months itself?
A: I do not think I will be able to comment on timing because as you said yourself ONGC was lined up and it was the market conditions or falling crude that hit the stock. All I can say at this stage is that we will watch the market and we are in readiness not only for ONGC and IOC, we are ready for a whole lot of other stocks also and by the end of May we will have a lot of stocks ready.
Latha: There were news reports that the divestment ministry, in fact you will have the finance ministry on your side in this, will pursue the labour ministry to ask the Employees Provident Fund Organisation (EPFO) to be more proactive in terms of stock investment. Is this news piece correct, is our efforts on at all?
A: Yes, efforts are certainly on and in fact pension fund, provident fund all these funds across the world are investing in equity but not so in India and this is a very good beginning. I would say that the public sector undertaking (PSU) stocks are absolutely ideal for certain investments because they are safe bets, they are blue chip companies, they are government. So we are very hopeful of good outcome. Yes, we have initiated the process.
Latha: The stance has normally been a little different from the trustees of the EPFO. You think that they will be convinced this time around, when should we hear one way or the other?
A: We are hopeful. I think their preference right now is more for the exchange-traded fund (ETF) route, so we hope that we will make progress.
Sonia: Last year you did launch that Central Public Sector Enterprises (CPSE) ETF, for retail investors comprising of 10 PSUs. I understand from news reports that there is some plan to revamp that entire CPSE ETF scheme. What would this revamp include, would it be made easier for retail investors, would you change the constituents of this ETF?
A: We would not be changing the constituents of ETF because it is a follow on offering so to speak. However, we are trying to make it friendlier towards retail investors and that is why it is taking a bit of time.
Sonia: How would you do that?
A: There are couples of issues to do with unit size etc, a couple of technical things which are still in process. It is being talked between the asset manager and the government. It is still being discussed.
Latha: The split we understand in divestment was Rs 41,000 crore through PSU divestment and Rs 28,500 crore through strategic investment. What are the candidates for strategic investment?
A: I don’t think I will be able to tell you names. The decision for which company to disinvest will not be taken by us. It is taken by the concerned administrative ministry. Discussions must be on; they must be taking a look as to which ones to take as candidates. After that it will be a joint call by various ministries as to various issues like pricing and process, etc.
Latha: But are these strategic investments in listed stocks or would it comprise the entire universe, I mean the unlisted as well?
A: At this stage it is a little early to say because it has not been decided what to do but definitely, shall I say there is focus on sick units but it is not limited to sick units.
Sonia: The reason why we are persisting and I understand your constraint as well but the reason why we are persisting is because Rs 69,500 crore target seems to be a very daunting target especially at a time when certain big issues like ONGC, Bharat Heavy Electricals (BHEL) are not fructifying. At least can you tell us which the big ticket companies are, of course the smaller ones will keep happening like Rural Electrification Corporation (REC) but say for example BHEL can we expect anything to come through on that front say in the next three-six months. If you can just give us an indication of how the government manages to reckon such a big amount like almost Rs 70,000 crore?
A: I will not really be able to tell you names of companies. How the government rakes in, I can tell you the broad strategies, which is that in earlier years we would have an annual plan, we had a given number of stocks and we would go at it one by one and the market would go at it one by one also before we actually divest it. We realised late last year that there are better way we can do business, so we pulled out whole lot of other stocks with potential. We fast tracked the approvals and we have a whole basket of stocks for approval.
It need not mean that all the stocks will be divested this year. Some of them may spillover into next year depending on market conditions. However, on the supply side our strategy is that we will fast track everything so that as soon as the market is good for that particular stock or if the market is already good, we can go ahead. There will be no delays on account of processes or delays on account of stocks not being ready. So that is the game plan we have and we have a whole lot of stocks as I mentioned lined up but for obvious reasons I do not want to mention names.
Sonia: Do you have any fair degree of certainty that the government will be able to meet this target of Rs 69,500 crore?
A: In any market transaction there are demand and supply forces. On the supply side I can certainly say that our readiness will be complete and we will certainly give our best shot but there are market conditions to be looked at. So, our preparation will not be wanting, we will try our best and hopefully we should achieve it.
Latha: There is still headroom in Coal India right?
Latha: That is part of your potential list sometime in the year?
A: As I mentioned to you, the processes we are setting in motion are not just for this fiscal year. Coal India in fact to reach, there are listing target, they will still need to divest some more. Therefore, nothing is ruled out at this stage but I do think having done such a big issue right now I don’t think it will be done say in the next six months or something like that.
Latha: If such a big target as to be reached the government has no choice but to do say Coal India, ONGC and the big Specified Undertaking of Unit Trust of India (SUUTI) stocks those are really the gold mines. We already discussed Coal India, so the SUUTI stocks?
A: Can I ask you a question back?
A: You said it is one of the better performers - what did you mean by that?
Latha: The stock performance has been excellent. Coal India’s performance in the last two or three months both in terms of the coal output for the longest time Coal India produced only one or two percent growth. This year they have done 7 percent and the stock market have given that stock a thumps up in that sense I thought it would have been, I mean you obviously go to the goose that lays golden eggs?
A: If you analysis what happen the day we did the offer for sale (OFS), the market crashed; everybody pulled out money from every where to put it there. So there are issues of market depth and we have written to our Department of Economic Affairs that
more steps need to taken to increase the depth of the market and they would be taken the requisites steps because such a large stock, it is certainly the largest in history in India and my merchant bankers tell me they are not really sure but they tell me that perhaps there was an issue called American Towers which was slightly more than this globally, otherwise it is really a historic issue. So these issues like this don’t come every day and the market has to be prepared for them.
Latha: What exactly is the Department of Economic Affairs (DEA) preparing? I agree big stocks and all the stocks that I mentioned ONGC to some extent and the stocks in the SUUTI could all be faced with this problem, at least one stock could be, so what is the DEAs recommendation?
A: I will just give you a couple of figures. Coal India we got more than Rs 1800 crore of retail participation yet that was not enough because the government is committed to retail investment being increased. There was a 20 percent reserve that we had kept for ourselves. It was short of that. So, just to make the point, there is need for much more depth.
One of the things that come to mind right away is because these are single day transactions. So, people have to be ready. If they are not ready – you need to have an active demat account, you need to be studying the companies – so one of the things that I am going to recommend to the various ministries also that don’t go on road shows only when a divestment is around the corner.
They need to be getting across periodically. A time when the quarterly results come in is a good time to talk to investors so that they are better prepared. That is one of the things that could be done. More active demat accounts, these are some things that come to mind right away.
Sonia: Coming back to retail participation, just a while back you were telling us in the CPSE ETF talks are on tweak some of the norms especially with respect to unit size, etc. Currently individual investors can invest a minimum of Rs 5,000 and a maximum limit Rs 10 lakh. Will that minimum limit be brought down to invite more retail participation?
A: There is talk of reducing some minimum limits certainly so. However, the final product is being worked out right now and it will need Securities and Exchange Board of India (Sebi) approval as well before we actually launch it.
Latha: Once again the SUUTI stocks. It is laughable why the government should own tobacco companies shares. Should we hear a something this year in terms of the government lightening the holding in Larsen and Toubro (L&T) or in ITC?
A: I do want to tell you that SUUTI is not handled by the department of disinvestment but by the department of economic affairs and I am sure there must be seized of the matter because it is mentioned in the Budget.
Sonia: Just one small technical question on this Central Public Sector Enterprises -Exchange Traded Fund (CPSE-ETF) itself you did say that you are going to take it to Sebi for approval by when do you expect the approval to come through and through this route how much do you think you can actually raise?
A: In the past Sebi approvals have come in pretty quickly. I think Sebi has also increased its speed considerably. I do not think there will ultimately be anything that will be objectionable so I don’t visualise it taking a long time. The amount that we are looking at it is somewhere between Rs 4,000-5,000 crore but it would depend once again on the market at that point of time.