The government is experiencing trouble in divesting its stake in Power Finance Corp
(PFC) and NTPC
as norms on bonds require the Centre to retain a majority stake, Mint reported
The government intends to sell its stake in some state-run companies through two exchange traded funds (ETFs) – CPSE ETF and Bharat 22 ETF.
As of the end of the September quarter, the government’s stake in NTPC is 54.5 percent, and in PFC it is 56.16 percent.
If the government trims its stake to below 50 percent in PFC and NTPC, they will lose their quasi-government status, which will increase overseas borrowing costs.
“We don’t have the necessary headroom now to raise a big amount through ETFs. We have asked the administrative ministry to examine the legal matter of bringing the stake below 50 percent in NTPC and PFC," a finance ministry official told Mint.
Moneycontrol could not independently verify the report.
If receiving approval from overseas market regulators is expensive and time-consuming, the Centre will remove the two stocks from the ETFs, the official added.
NTPC raised Rs 70,000 crore for 10 years through overseas bonds, a source told the paper. It gave an undertaking that investors could withdraw their money if the government’s stake dropped below 50 percent, the report said.
“If investors start asking for their money back, then the company has to be closed down. That’s why the government is not sure how to bring its stake below 50 percent," the source added.
The government has set a divestment target of Rs 1.05 lakh crore for FY20, of which it raised only Rs 17,364. Out of this, 82 percent (Rs 14,369 crore) was raised through index funds.