Oct. 13 (Bloomberg) -- India may allow state-owned companies to buy back shares held by the government, providing the country with funds to fill a budget gap after proceeds from public offerings of the stakes have dwindled.
“Some of these companies are cash rich and their cash hoard is bigger than their annual turnover,” Disinvestment Secretary Mohammad Haleem Khan said in an interview in New Delhi yesterday. “They have their minds open to all options available to non-state companies.”
Selling the stakes back to companies is one way the government could make progress toward a goal of raising 400 billion rupees ($8.2 billion) in the year through March. Limited to public stock offerings so far, India has raised 11.4 billion rupees since April, or about 3 percent of the target, as falling stock markets hurt demand for the shares.
Funds raised from asset sales will be used to help plug the nation’s fiscal deficit. India plans to reduce the annual deficit to 4.6 percent of gross domestic product, the lowest in four years.
“For me, it’s not just about meeting a particular target,” said Khan, 58, who assumed his post in June. “I have to meet the expectations of the government regarding the realization of pricing. It is a trade-off.”
Indian companies, including those backed by the government, have raised 290 billion rupees in domestic share sales in 2011, less than half the 700 billion rupees of stock they sold in the same period last year, according to data compiled by Bloomberg.
Foreigners are seeking assurances that India’s growth will continue, according to Khan, who met with fund managers in New York last month. “Some investors, who are very big ones and long-term ones, were saying: ‘Your mode of investment does not let us enter in a big way’,” he said.
State-owned companies allocate 35 percent of new stock offerings to the general public, and don’t reserve a portion of the sale for large funds like privately held companies do.
“If the investment options available to them are very small, it doesn’t fit into their scheme of things,” Khan said, referring to international institutional investors. “Over a period of time, we might be able to look into this.”
The disinvestment department is also considering selling government-held stakes through block trades, or the sale of a large amount of shares at once, said Khan.
India’s largest IPO was that of Coal India Ltd. in October 2010. The sale was 15 times oversubscribed and raised 152 billion rupees, helping the government meet part of its asset- sale target for that year. This year, the government has closed one offering, the 11.4 billion rupee sale of shares in Power Finance Corp.
Khan’s department plans to sell stakes in companies including Oil and Natural Gas Corp., India’s largest energy explorer, Bharat Heavy Electricals Ltd. and National Building Construction Corp. by March, Khan said. The government will meet this month to decide how to proceed with the Oil and Natural Gas stake sale, which was scrapped last month, Khan said.
The government also wants to divest stakes in Rashtriya Ispat Nigam Ltd. and Hindustan Aeronautics Ltd. through initial public offerings that may take place in the first six months of 2012, Khan said. His department also has approval for a stake sale in Tyre Corporation of India Ltd. and is in the process of finding a suitable buyer, he said.
Global investment banks in India have managed most state share sales for near-zero fees as they vie for league table credit that may help them win more advisory roles. As the equity capital markets dried up this year, some firms are balking at working for no pay.
Last month, Edelweiss Financial Services Ltd. and IDFC Capital Ltd. pulled out of a sale by Rashtriya Ispat, India’s second-biggest state-run steelmaker after refusing to match a 1 rupee fee offered by UBS AG. Deutsche Bank AG agreed to the fee, people familiar with the matter said at the time.
“The domestic banks said they are not making money in the present scenario so they would not like to stretch their resources,” Khan said. “If it’s a standalone situation we can continue with the existing practices.”
Still, Khan said India may have to re-evaluate existing fee guidelines should more domestic banks refuse to help underwrite such deals.
--Editors: Mohammed Hadi, Philip Lagerkranser
To contact the reporters on this story: Ruth David in Mumbai at firstname.lastname@example.org; Anto Antony in New Delhi at email@example.com
To contact the editor responsible for this story: Philip Lagerkranser at firstname.lastname@example.org