Prime Minister Narendra Modi’s Ambitious Divestment Scheme Launches

Prime Minister Narendra Modi’s ambitious programme of disinvestment in big state-run companies started on Friday. The government is selling 5 per cent stake in state-run SAIL, India’s second largest steel manufacturer by market value, to meet its disinvestment target for the 2014-15 fiscal year. The proceeds of the share sale will help the government meet its fiscal deficit target for the year.

Here is your ten-point cheat sheet on this story:

1) The disinvestment target for the year is Rs 58,425 crore out of which Rs 43,425 crore will come via share sale in PSUs. The government is likely to raise Rs 1,700 crore if the share sale in SAIL goes through at Rs 83 per share. The amount is just 4 per cent to the government’s total disinvestment target of Rs 43,425 crore via share sale in PSUs.

2) The response to Friday’s share sale in SAIL will be crucial for the government to gauge investor appetite ahead of the planned sale of a 10 per cent stake in Coal India and a 5 per cent stake in Oil and Natural Gas Corp. Stake sales in NHPC, Power Finance Corp and Rural Electrification Corp are also in the pipeline.

3) The bigger Coal India and ONGC stake sales should help the government raise a combined Rs 38,000 crore, as per the current market prices.

4) The government is likely to miss its disinvestment target for the year, analysts say. “The target that the government has set is a tall target,” said Deven Choksey, managing director at Mumbai-based brokerage KR Choksey Securities.

5) There is no real excitement for state-run companies like SAIL among investors, analysts told. Most state-run companies have underperformed the broader markets despite a record rally this year. SAIL shares have risen just 18 per cent this year, lagging a near 36 per cent rise in the Sensex.

6) According to domestic brokerage Kotak, the government needs to come out with a long-term plan to improve performance of state-run companies. “In our view, the government may want to review its very ownership of PSU companies with a far bolder program of privatization,” it said in a note last month.

7) Market expert Ambareesh Baliga told that long-term investors, with a 2-3 year horizon, should buy SAIL. “India cannot grow at 8 per cent without growth in infrastructure and steel is an important part of infra sector,” he said.

8) The government is selling 20.65 crore shares in the company. Post the share sale, the government’s stake will come down from 80 per cent to 75 per cent.

9) The share sale in SAIL is taking place through the Offer for Sale route, which helps promoters of listed companies to sell or dilute their shareholdings through an exchange based bidding platform.

10) The floor price or the minimum bid price for SAIL has been fixed at Rs 83, which is at a discount to Thursday’s close price of Rs 85.35 on the Bombay Stock Exchange. Retail investors will get a 5 per cent discount.