GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF INVESTMENT AND PUBLIC ASSET MANAGEMENT BACKGROUND MATERIAL FOR ECONOMIC EDITOR’S CONFERENCE MANDATE The mandate of the Department of Investment and Public Asset Management (DIPAM), inter-alia, includes disinvestment of Government’s shareholding in Central Public Sector Enterprises (CPSEs), matters relating to GoI’s investment in equity like capital restructuring, bonus, dividends and other related issues. DISINVESTMENT POLICY • On February, 2016, a new policy for management of Government investment in CPSEs, including disinvestment and strategic sale was approved. This was to leverage the assets of CPSEs for generation of resources for investment in new projects. This allows CPSEs to divest individual assets like land, manufacturing units etc. to release their asset value for making investment in new project. • The Department of Disinvestment (DoD) has been renamed as Department of Investment and Public Asset Management (DIPAM) with enhanced mandate of efficient management of Government investment in CPSEs by addressing issues such as capital restructuring, dividend, bonus shares etc. The approach is towards capital management from investor’s point of view. OBJECTIVES The objectives of Disinvestment Policy are: - (a) Promote people’s ownership of CPSEs to share in their prosperity through disinvestment. (b) Enables efficient management of public investment in CPSEs for accelerating economic development and augmenting Government’s resources for higher expenditure. (c) Listing of CPSEs on stock exchanges to facilitate development and deepening of capital market and spread of equity culture. (d) Raising budgetary resources for the Government. 1 COPREHENSIVE MANAGEMENT OF GOI’s INVESTMENT IN CPSEs • The Government recognizes its investment in CPSEs as an important asset for accelerating economic growth and is committed to efficient use of these resources to achieve optimum return. • The Government will achieve these objectives by adopting a comprehensive approach for addressing critical inter-linked issues, such as, leveraging of assets to attract fresh investment, capital restructuring, financial restructuring, etc. • Different options for optimal utilization of Government’s investment in CPSEs will be assessed to adopt suitable investment management strategies to improve investors’ confidence in the CPSEs and support their market capitalization which is essential for raising fresh investment from the capital market for their expansion and growth. • Efficient management of investment in CPSEs are to be ensured through rationalization of decision making process for all related issues and seamless inter- departmental coordination in the matter. SRATEGY FOR DISINVESTMENT Under the given mandate and keeping in view the objectives, DIPAM has adopted the following approaches for disinvestment: - (a) Disinvestment Through Minority Stake Sale • Already listed profitable CPSEs (not meeting mandatory shareholding of 10 per cent which stands revised to 25 per cent) are to be made compliant through ‘Offer for Sale’ (OFS) by the Government or by the CPSEs through issue of fresh shares or a combination of both; • Unlisted CPSEs with no accumulated losses and having earned net profit in three preceding consecutive years are to be listed; • Follow-on public offers to be considered, taking into consideration need for capital investment of CPSEs on a case by case basis. The Government has the option to simultaneously or independently offer a portion of its equity shareholding; (b) Strategic Disinvestment • This implies sale of substantial portion of the Government shareholding in a CPSE of up to 50% or higher along with transfer of management control to the investor. • NITI Aayog has been mandated to identify CPSEs for strategic disinvestment and advice on the mode of sale, percentage of shares to be sold of the CPSE and method for valuation of the CPSE. • The Core Group of Secretaries on Disinvestment (CGD), has been empowered to consider the recommendations of NITI Aayog to facilitate a decision by the Cabinet Committee on Economic Affairs (CCEA) on strategic disinvestment and to supervise/monitor the process of implementation. 2 INITIATIVES VIS-À-VIS DISINVESTMENT POLICY DIPAM has taken following measures to accelerate the disinvestment process: • Annual disinvestment plan has been replaced with rolling plans. • A pipeline of proposals for CPSEs to take advantage of better market condition without any loss of time has been created. • Approval process involved in the disinvestment has been fast tracked. • Disinvestment programme has been made more inclusive by to reserving 20 per cent of shares on PSUs-OFS transactions for retail investors on a case to case basis. • Based on the suggestion made by the Department, SEBI has reduced the notice period for an OFS transaction from T-2 to T-1 (T being the transaction day). This has helped in minimizing the possibility of price hammering between the notice day and the transaction day and suitably protecting the interest of retail investors by providing them sufficient time to participate in the OFS transaction. ACHIEVEMENTS (a) Disinvestment Achievements During the Last Five Years: (in Rs. Crore) Year Target Amount realized BE RE 2011-12 40000 15493 13894 2012-13 30000 24000 23956 2013-14 40000 16027 15819 2014-15 43425 26353 24349 2015-16 41,000 25313 23997* (excluding strategic sale) *An additional amount of approx. Rs. 8152 crore has also been realized through sale of bonus debentures to EPFO (NTPC) respectively. • The budget estimate (BE) for disinvestment during the year 2016-17 is Rs. 56,500 crore, out of which Rs. 36,000 crore corresponds to proceeds from minority stake sales and Rs. 20,500 crore from strategic stake sales. • During the current financial year, Government has so far realized approx. Rs.14727.48 crore through 7 transactions (4 disinvestment and 3 buyback transactions) under the minority stake sale. (b) Details Of Disinvestment In CPSEs During 2014-15 • CPSE ETF New Fund Offer (NFO), comprising stock of ten CPSE scrips: BEL, CIL, EIL, CONCOR, GAIL, IOL, OIL, ONGC, PFC & REC were launched in March, 2014, to disinvest up to 3% of GoI shareholding from an individual CPSE. It 3 provided investors with a low-cost, low –risk and well-diversified equity product. GoI offered upfront 5% discount to all categories of investors. 37,323 investors participated in CPSE EFT, out of which 98.5% were Retail Individual Investors. Government of India realized an amount of Rs. 3000 Crore as divestment proceeds of CPSE ETF. • Government realized an amount of Rs 24,348.71 crore through disinvestment in 2 offer for sale (OFS) issues of SAIL (Rs.1719.54 crore) & COAL INDIA (Rs.22557.63 crore) and 6 transactions in Employee OFS viz., NFL (Rs.3.60 crore), NTPC Rs. 48.16 crore, MMTC (Rs.4.16, crore) HCL (Rs.3.17 crore), NALCO (Rs.12.45 crore), NMDC (Rs.0.0040 crore) • An amount of Rs. 29,438.42 crore was utilized through NIF during the year 2014-15 for meeting capital expenditure of the Ministry of Railways and re-capitalization of Public Sector Banks (PSBs). (c) Details Of Disinvestment In CPSEs During 2015-16 • Measures like replacing annual plan with rolling plans, creating a pipeline of proposals for CPSEs and fast tracking of approval process were taken to accelerate the disinvestment process. The disinvestment programme was made more inclusive by allowing reservation upto 20 per cent of shares in PSUs-OFS transactions for retail investors on a case to case basis. • As a result of these initiatives, for year 2015-16, the Government realized Rs. 32148.80 crore through disinvestment in 7 offer for sale (OFS) issues of Rural Electrification Corporation (REC) (Rs.1608.00 crore), Power Finance Corporation (PFC)(Rs.1671.00 crore), Dredging Corporation of India Ltd. (DCIL)(Rs.53.33 crore), Indian Oil Corporation (IOC)(Rs.9369 crore), Engineers India Ltd. (EIL)(Rs.642.5 crore), National Thermal Power Corporation Ltd. (NTPC)(Rs.5,014.55crore)and Container Corporation of India Ltd. (CONCOR)(Rs. 1,155.20 crore), Buyback of shares by BDL(Rs. 198.85 crore),Buy Back of shares by HAL (Rs. 4284.37crore) and NTPC sale of Bonus debentures held with the Govt. to EPFORs. 8152crores. (d) Details Of Disinvestment In CPSEs During 2016-17 • During the current financial year, Government has so far realized approx. Rs.14727.48 crore through 7 transactions {disinvestment by OFS in 2 CPSEs viz. 4 National Hydroelectric Power Corporation (NHPC) (Rs. 2716.55 crore) and Hindustan Copper Limited (HCL) (Rs. 399.93 crore), Employees-OFS in Indian Oil Corporation limited (IOCL) and National Thermal Power Corporation (NTPC) for Rs. 262.49 crore and Rs. 203.78 crore respectively, and 3 buyback of shares by the Companies viz. National Aluminum Company Limited (NALCO) (Rs. 2831.71 crore), MOIL Limited (Rs. 793.87 crore) and National Mineral Development Corporation (NMDC) (Rs. 7519.15 crore)}. In addition, OFS to employees of Engineers India Limited (EIL) has also completed and the Government is expected to receive an amount of Rs. 31.37 crore. Beside above, buyback in the case of Coal India Limited (CIL) & Bharat Electronic Limited (BEL) is expected to further yield at least 4536 Cr. in October/November, 2016 Central Public Sector Enterprises (CPSE) Exchange Traded Fund (ETF) (i) An Exchange Traded Fund (ETF) is a security that tracks an index like an index fund, but trades like a stock on an exchange. Constituent stocks are listed and actively traded, and may have representation from various sectors to provide ETF unit holders adequate diversification. (ii) Disinvestment through the ETF route allows simultaneous sale of GoI stake in various CPSEs across diverse sectors through a single offering and avoids the necessity to go to the market repeatedly for divesting different stocks. The CPSE-ETF provides a mechanism for the GoI to monetize its shareholding in those CPSEs that eventually form part of the CPSE ETF basket, in a stock- neutral, time-efficient and non-disruptive manner.