Govt may sell stake in three blue chip firms to raise funds :AXIS Bank -Larsen -ITC

The Government is planning to sell the holding of SU-UTI (Specified Undertaking of the Unit Trust of India) in three blue-chip companies — Axis Bank, Larsen & Toubro and ITC Ltd — in the next few months. The stake sale, which may spill over to the next year, is expected to help devote more funds for public investment in 2016-17, according to senior government officials.

 “Raising resources for increased government expenditure while keeping the fiscal deficit under control is a big challenge. Selling SU-UTI holding in these three companies will partly help expand the fiscal space,” a senior government official told 

“Axis Bank is likely to be the first one,” the official added.

SU-UTI currently holds 11.66 per cent in Axis Bank, 11.27 per cent in ITC Ltd and 8.18 per cent in L&T. Based on Friday closing prices of the companies’ shares on the Bombay Stock Exchange, the stake sale in the three companies will fetch the government Rs 48,658 crore. Having set a disinvestment target of Rs 69,500 crore for 2015-16, the government has managed to raise only Rs 13,337 crore in the first 10 months.

Attempts to sell stakes in these three companies have met with stiff opposition in the past. As far as ITC is concerned, it is feared that the sale may result in majority foreign shareholding and loss of Indian control in the firm. London-headquartered British American Tobacco, which holds 30 per cent stake in the Indian cigarette-maker through different entities, has had a strained relation with the ITC management in the past.

For L&T, it has been argued that since the company is involved in defence-related activity, sale of government stake may result in “undesired” foreign investment. This may not hold true now with the government allowing 49 per cent FDI in defence production and even up to 100 per cent on a case-to-case basis.

With government expenses set to rise sharply next year on account of the implementation of Seventh Pay Commission and One Rank One Pension (OROP), it is looking at more revenue-generating measures. In addition to OROP, the Centre’s salary bill is set to increase by Rs 1,02,100 crore in 2016-17 if the Seventh Pay Commission’s 23.55 per cent hike in pay, allowances and pensions of government employees is fully implemented from January 1.

Concerns have risen whether the government will stick to its fiscal consolidation roadmap amid the anticipated rise in expenses next year.

According to the roadmap, the government aims to lower its fiscal deficit to 3.5 per cent of the gross domestic product next year from 3.9 per cent this year.

SU-UTI was formed in February 2003 after the erstwhile Unit Trust of India (UTI) was split into UTI Trustee Company Private Limited and SUUTI. This followed the winding up of US-64 scheme.

In March 2012, the Union Cabinet had approved a proposal to wind up SUUTI. A new firm, National Financial Holdings Company Ltd (NFHCL), was incorporated and registered in June 2012 under the Companies Act. It was decided to transfer all assets and liabilities of SUUTI into the new entity. The decision was, however, reversed over a year later to allow SUUTI to monetise its holdings.

Subsequently, in March 2014, the government sold 9 per cent stake in Axis Bank for Rs 5,557 crore. In the same year, the government had proposed to float a close-ended Exchange Traded Fund (ETF) comprising stocks held by SUUTI and select listed Central Public Sector Enterprises to monetise its shareholdings in these companies. The government had invited bids for an asset management firm to set up the ETF of SUUTI stocks, but the fund never came through.