New Delhi, March 1 (IANS) India Thursday allowed state-owned companies to buy back their own shares from the government as part of a strategy to raise a substantial amount of funds to bridge the widening fiscal deficit.
The decision was taken at a cabinet meeting chaired by Prime Minister Manmohan Singh and opens for the government another avenue to sale its stake in many of the public sector undertakings to the firms themselves, and thereby mobilise additional resources, according to officials.
This fiscal, the government has been woefully short of the target (Rs.40,000 crore) of generating funds through divestment.
Till date it has been able to raise only Rs.1,145 crore from Power Finance Corp after selling five percent stake in the firm. A one-day auction of five percent of ONGC, scheduled for March 1, was expected to fetch another Rs.12,000-13,000 crore.
The Department of Disinvestment had proposed part sale of government stakes to cash-rich PSUs themselves to raise around Rs. 40,000 crore. The department had also identified some 24 public sector enterprises with a total cash balance of Rs.200,000 crore or so for the buy-back programme.
The Securities and Exchange Board of India earlier relaxed norms for buy-back of shares and dilution of equity by companies in a bid to help companies complete the process of selling shares within days against the normal process that can take months.
Besides reducing the time for completion of buy-back of shares by companies up to 44 days, Sebi had also introduced a new mechanism called institutional placement programme that would allow promoters to sell up to 10 percent of their capital through an auction.
Many of the ministries are, however, not on the same page when it comes to the government divesting its stake in state firms.
Recently Heavy Industries Minister Praful Patel opposed the idea of a stake sale in Bharat Heavy Electricals (BHEL).
The government decision also failed to enthuse the capital market. Some of the cash-rich PSUs like NTPC and Coal India ended the day lower at the bourses.
