Government likely to cap stake sale in one tranche

In a move that will help it garner more money from disinvestment in state owned companies, the government is considering to cap the amount of stake that a public sector undertaking (PSU) can sell at one time. The finance ministry, which is deliberating on the issue, is likely to come up with 10% cap in case the move goes ahead.

What this means is that even if there is a scope of say 20% stake sale in a government-owned company, not more than 10% disinvestment would be done in one go. In other words, in companies where there is scope of more than 10% disinvestment, the stake sale would come in more than one tranche.

The government believes that such a strategy would help it to get greater value from disinvestment since it would improve the price discovery mechanism. This will also ensure that there is enough liquidity and appetite in the market and is in line with the government’s overall approach of initiating reforms but with measured cautions.

While the government had put the disinvestment number in the union budget for FY10 at a small figure of Rs1,120 crore for the fiscal, it had later clarified that it would go ahead with full fledged stake sale agenda to generate resources for investment in infrastructure. The government is also planning to make it mandatory for all listed companies to have a minimum public float of 25%, thus opening the easy door for disinvesting stake in a large number of PSUs.