18 January 2012

Divestment blues

I have a face-off piece in the Economic Times today - half heartedly defending the stand of government not to dilute its holding in public sector and private sector companies. Here is the short piece (reproduced below). It is a contrarian piece, but interestingly the piece has received the editor's pick of the day at ET's website.
The government can be blamed for many things surrounding disinvestment in public sector units listed on exchanges. Prime among them is the special dispensation around a minimum float of 25% in public hands that applies to all listed companies - with the exception of public sector.

After mandating a 25% public float, the finance ministry diluted the requirement in a quick volte face to 10%. Even this low figure is not complied with and there are public sector companies with over 99% of shares held by the government.

However, one cannot blame the government for the delay in divesting its portfolio of shares held by SUUTIto the public. Clearly, this is a terrible time to raise capital or sell securities. Companies in the private sector have voted with their feet and hardly any IPOs and sale of shares by private equity entities are happening at this time at this valuation.

This is because of the depressed valuations as also the huge volatility in prices even within the depressed markets. The cause of the problem is both national and international. While, it is not possible to argue against the final liquidation of the entity SUUTI, and if possible soon enough, it is also difficult to argue that this should be done, come what may, in the next quarter or two. Clearly, timing is important in the stock market.

And to exit at this time would mean that the sale of public sector shares and private sector shares by SUUTI would both be at highly discounted prices. To look at just one number, PSU stocks have lost nearly 20% value in the last one year.

The top 100 companies have lost around 15%. The numbers look a lot worse for a longer time horizon and they look even worse for companies beyond the top 100. It would make a lot more sense for the government to hold off selling both public and private company stakes.

In that light, transferring SUUTI stakes to a special vehicle is not so bad even if it amounts to pointless jugglery. If the shares belonged to you or me, we wouldn't have sold them. The same standard should apply to 'our' assets.

Also find linked here the other view

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