Business Environment

Disinvestment Policy

Disinvestment Policy Disinvestment Mechanisms - The primary objective of our government is social welfare - Government gave utmost importance to public sector - Due to excess protection and other reasons, performance of majority of PSUs was lowest - The government had to invest a lot in reviving the PSUs - Hence the government decided to apply disinvestment policy Objectives of Disinvestment Measures - Realising the large amount of public resources locked up in non-strategic PSUs - Reducing public debt - Transferring the commercial risk to private players Benefits of Disinvestment - The PSUs will understand market discipline - It facilitates freeing up of PSUs from government control and increase corporate governance - Wide distribution of wealth through offering shares to public - It creates favourable impact on capital markets - Due to end of monopoly in sectors like telecom, insurance and airlines it increased quality of services offered Review of Disinvestment Process - Started in the year 1991-92 - 20% of government equity in select PSUs to be transferred to Mutual Funds and Banks in 1992 - Small quantities of government shares were sold off in 1991 and 1992 - Range of buyers expanded to include private companies; brokers; FIIs; NRIs and foreign companies - Since 1998-99, government sold large quantities of PSU shares - By 1999-2000, 31 instances of government selling its equity through selling till 2003-04 - Disinvestment process is a continuous process and the money raised through disinvestment have been used for employee rehabilitation and welfare purposes Critique of Disinvestment Process - It is not desirable to disinvest profit making PSUs while keeping loss-making PSUs with the government - The procedure for disinvestment should be through public offering and not through strategic sale - Disinvestments should not lead to private monopoly from public monopoly - PSUs should also be allowed to participate in the bids for disinvestment of PSUs - Money from disinvestment should be spent properly - The interests of employees and workers to be protected The present disinvestment policy has been articulated in the recent Presidents addresses to Joint Sessions of Parliament and the Finance Ministers recent Parliament Budget Speeches

SRK Institute of Technology

J. S. Sudheer Kumar Assistant Professor

Business Environment

Disinvestment Policy

The salient features of the Policy are: (i) Citizens have every right to own part of the shares of Public Sector Undertakings (ii) Public Sector Undertakings are the wealth of the Nation and this wealth should rest in the hands of the people (iii) While pursuing disinvestment, Government has to retain majority shareholding, i.e. at least 51% and management control of the Public Sector Undertakings Approach for Disinvestment On 5th November 2009, Government approved the following action plan for disinvestment in profit making government companies: (i) Already listed profitable CPSEs (not meeting mandatory shareholding of 10%) are to be made compliant by Offer for Sale by Government or by the CPSEs through issue of fresh shares or a combination of both (ii) Unlisted CPSEs with no accumulated losses and having earned net profit in three preceding consecutive years are to be listed (iii) Follow-on public offers would be considered taking into consideration the needs for capital investment of CPSE, on a case by case basis, and Government could simultaneously or independently offer a portion of its equity shareholding (iv) In all cases of disinvestment, the Government would retain at least 51% equity and the management control (v) All cases of disinvestment are to be decided on a case by case basis (vi) The Department of Disinvestment is to identify CPSEs in consultation with respective administrative Ministries and submit proposal to Government in cases requiring Offer for Sale of Government equity

SRK Institute of Technology

J. S. Sudheer Kumar Assistant Professor

Business Environment

Disinvestment Policy

Market Capitalisation of CPSEs

Sl. No. (as on 30 September 2011) Company

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A BSE No.of Shares B C (in lacs) Close Price Market (Based on (Rs.) Capitalisation Shareholding (Rs.crore) Pattern as on (A * B) 30.06.2011)

to sort chronologically
NSE E Market Capitalisation (Rs.crore) (A * D) Other Exchanges F G Close Price Market (Rs.) Capitalisation (Rs.crore) (A * F)

D Close Price (Rs.)

1 ANDREW YULE & CO.LTD. 2 BALMER LAWRIE & CO.LTD. 3 BALMER LAWRIE INVESTMENTS LTD. 4 BEML LTD. 5 BHARAT ELECTRONICS LTD. 6 BHARAT HEAVY ELECTRICALS LTD. 7 BHARAT IMMUNOLOGICALS & BIOLOGICALS CORP.LTD. 8 BHARAT PETROLEUM CORP.LTD. 9 CHENNAI PETROLEUM CORP.LTD. 10 COAL INDIA LTD. 11 CONTAINER CORP.OF INDIA LTD. 12 DREDGING CORP.OF INDIA LTD. 13 ENGINEERS INDIA LTD. 14 FERTILIZERS & CHEMICALS TRAVANCORE LTD. 15 GAIL (INDIA) LTD. 16 HINDUSTAN CABLES LTD. 17 HINDUSTAN COPPER LTD. 18 HINDUSTAN FLUOROCARBONS LTD. 19 HINDUSTAN ORGANIC CHEMICALS LTD. 20 HINDUSTAN PETROLEUM CORP.LTD. 21 HINDUSTAN PHOTO FILMS MFG.CO.LTD. 22 HMT LTD. 23 INDIA TOURISM DEVELOPMENT CORP.LTD. 24 INDIAN OIL CORP.LTD. 25 IRCON INTERNATIONAL LTD. 26 ITI LTD. 27 KIOCL LTD. 28 MADRAS FERTILIZERS LTD. 29 MAHANAGAR TELEPHONE NIGAM LTD. 30 MAHARASHTRA ELEKTROSMELT LTD. 31 MANGALORE REFINERY & PETROCHEMICALS LTD. 32 MMTC LTD. 33 MOIL LTD.

3,186.38 162.86 221.97 416.44 800.00 4,895.20 431.80 3,615.42 1,489.11 63,163.64 1,299.83 280.00 3,369.37 6,470.72 12,684.77 9,252.18 195.99 671.73 3,386.27 2,048.65 7,603.50 857.69 24,279.52 98.98 2,880.00 1,611.01 6,300.00 240.00 17,525.99

19.10 597.05 157.55 458.50 1,532.70 1,637.15 9.71 646.85 203.65 332.75 969.00 249.35 247.05 33.50 410.95 226.90 12.48 21.45 365.40 30.00 40.40 104.55 310.55 305.00 21.85 31.50 229.90 62.15

608.60 972.36 349.72 1,909.40 12,261.60 80,141.77 41.93 23,386.35 3,032.58 2,10,177.03 12,595.33 698.18 8,324.02 2,167.69 ** 52,128.08 20,993.20 24.46 144.09 12,373.44 614.60 3,071.81 896.72 75,400.06 301.89 629.28 1,984.50 551.76 10,892.40 65,595.00 4,716.60

597.05 457.80 1,534.10 1,639.65 647.80 204.80 333.20 969.20 248.65 246.25 33.65

972.36 1,906.49 12,272.80 80,264.15 23,420.70 3,049.71 2,10,461.26 12,597.93 696.22 8,297.06 2,177.40 52,077.34 20,974.69 144.09 12,412.38 3,068.01 75,618.58 629.28 339.12 1,990.80 10,883.64 65,415.00 4,708.20

NA NA -

410.55 226.70 21.45 366.55 c * 40.35 a 311.45 d 21.85 21.05 31.60 62.10 654.15 280.25

10,000.00 655.95 1,680.00 280.75

SRK Institute of Technology

J. S. Sudheer Kumar Assistant Professor

Business Environment
34 NATIONAL ALUMINIUM CO.LTD. 35 NATIONAL FERTILIZERS LTD. 36 NEYVELI LIGNITE CORP.LTD. 37 NHPC LTD. 38 NMDC LTD. 39 NTPC LTD. 40 OIL & NATURAL GAS CORP.LTD. 41 OIL INDIA LTD. 42 POWER FINANCE CORP.LTD. 43 POWER GRID CORP.OF INDIA LTD. 44 RASHTRIYA CHEMICALS & FERTILIZERS LTD. 45 RURAL ELECTRIFICATION CORP.LTD. 46 SCOOTERS INDIA LTD. 47 SHIPPING CORP.OF INDIA LTD.,THE 48 SJVN LTD. 49 STATE TRADING CORP.OF INDIA LTD.,THE 50 STEEL AUTHORITY OF INDIA LTD. Total Market Capitalisation of CPSEs Total Market Capitalisation % share of CPSEs in Market Capitalisation

Disinvestment Policy 25,772.39 4,905.78 16,777.10 1,23,007.43 39,647.16 82,454.64 85,554.90 2,404.54 13,199.32 46,297.25 5,516.88 9,874.59 429.92 4,657.99 41,366.26 600.00 41,304.01 61.65 67.95 78.45 23.45 227.05 167.25 265.70 1,345.05 150.10 98.30 72.80 173.10 38.25 83.20 21.40 156.80 105.20 15,888.68 3,333.48 13,161.63 28,845.24 90,018.88 1,37,905.39 2,27,319.37 32,342.32 19,812.17 45,510.20 4,016.29 17,092.92 164.45 3,875.45 8,852.38 940.80 43,451.81
12,99,515.91 59,53,887.00 21.83

61.80 68.15 82.80 23.50 227.15 167.65 266.10 1,349.35 150.00 98.45 73.15 173.90 83.05 21.50 156.70 105.65

15,927.33 3,343.29 13,891.44 28,906.75 90,058.52 1,38,235.21 2,27,661.59 32,445.71 19,798.98 45,579.65 4,035.60 17,171.91 3,868.46 8,893.75 940.20 43,637.68
12,98,773.28 58,20,334.00 22.31

NA

3 of the top 10 companies by market capitalization are also CPSEs:

Sl. No. Company Close Price (Rs.)
808.30 265.70 332.75 1,037.50 197.85 2,533.80 378.10 167.25 1,911.10 467.25

Market Capitalisation at BSE (Rs.crore)

2,64,656.02 2,27,319.37 2,10,177.03 2,03,061.68 1,53,602.88 1,45,487.68 1,43,584.61 1,37,905.39 1,21,354.66 1,09,066.24

1 2 3 4 5 6 7 8 9 10

RELIANCE INDUSTRIES LTD.

ONG CORP LTD COAL INDIA

TCS LTD. I T C LTD INFOSYS LTD BHARTI AIRTEL

NTPC LTD

STATE BANK OF INDIA HDFC BANK LTD

Source of Information:

SRK Institute of Technology

J. S. Sudheer Kumar Assistant Professor