Analysis - Coal India Disinvestment: Success for the Indian Economy

Analysis - Coal India Disinvestment: Success for the Indian Economy

Q. “Coal India Limited disinvestment is a massive success for the Indian economy.” Discuss and analyse.

I. About Coal India Disinvestment:

• Coal India disinvestment has brought much needed funds to coffers
• Sale of 10% of stake in CIL fetched the government close to INR 24,557 crore
• This is more than half of budgeted stake of INR 43,425 crore from disinvestment in the previous year
• Raised close to INR 1,719 crore till this fiscal through the share sale of Steel Authority of India
• Fiscal deficit close to 4.1% of the GDP in 2014-2015; budgeted revenues from disinvestment is vital

II. For

1. Largest equity offering in the nation

2. Sets a precedent for other PSU disinvestments such as ONGC and NHPC

3. CIL disinvestment a success with assistance from domestic institutional investors, especially insurance firms

4. INR 11,360 crore/half of the total sum raised from insurance companies

5. LIC has seen genuine promise in CIL while investing money

6. FIIs/Foreign Institutional Investors have placed INR 5,919 crore in CIL offering

7. LIC placed entire half of shares on Coal India's INR 22,558 crore disinvestment

8. LIC purchased 28.47 crore or 4.51% stake in concluded offer for sale of CIL; stake sale now stands at 7.24 per cent up from 2.73 per cent as per disclosure on BSE
by Coal India

9. Government sells 63.16 crore shares or 10% stake in Coal India through offer for sale; LIC has purchased shares worth INR 10,200 crore in CIL disinvestment

10. CIL's disinvestment is the biggest share sale by any private or PSU company in India and exceeds record of INR 15,000 crore created by the coal giant in 2010

11. At indicative price or weighted average price of INR 358.49, LIC has spent INR 10,206 crore in CIL disinvestment. Through the massive sale, government has gained INR 22,558 crore

12. Following the purchase, LIC's stake in Coal India has risen to 7.24% from 2.73% as per disclosure made by CIL to BSE

13. Government sold 63.16 crore shares and close to 10% stake in Coal India through offer for sale in January while floor price has been fixed at Rs. 358.

14. Though the retail portion of the share sale was under-subscribed, bidding was still carried out for INR 5.56 crore shares

15. 20% of the sale size was reserved for retail investors; Market euphoria followed; former President of Coimbatore Stock Exchange has invested in new offer of CIL to gain from price difference between acquisition and prevailing market price

16. Long term prospects of the market were reassuring

17. Government aiming higher for setting new record for highest ever disinvestment proceeds in the nation

18. Government will get the highest divestment collection this year, based on precedents

19. Domestic brokerage IIFL holds that Coal India will be the largest beneficiary of the governmental focus on fuel security

20. Government's bottom-up blueprint for Coal India will help miners achieve 1 billion tonnes coal production by 2020.

21. Modi government has raised INR 58,425 crore through sale of small stakes in state run plus other firms

22. Strong investor response will bolster the plan of the government to offload shares in state firms such as ONGC and Power Finance Corporation

23. Overseas and local portfolio investor demand for Coal India shares exceeded supply with category oversubscribed by 1.2 times

24. Retail participation was not 100% yet the divestment secretary indicated the glass is half full

25. FIIs/foreign institutional investors will place INR 5919 crore in the CIL offer which is positive news

III. Against

1. LIC has asked to sell public sector shares to ensure the fiscal deficit remains down

2. Coal India disinvestment has raised INR 22,557 crore bailed out by LIC, around INR 10,000 crore came from LIC ; But this cannot be called 100% disinvestment

3. Tax revenues may be sluggish and every rupee raised from disinvestment shows a clean bottomline yet the dip cannot be into LIC's cash; this benefits no one

4. LIC has also helped TCI or The Children's Investment Fund of the UK for exiting Coal India for exiting Coal India; 1% of the stock has enabled TCI to make major gains as share prices have benefited from the price hike

5. TCI has made the exit with aid from LIC according to media reports. LIC is therefore bailing out the government as well as private investors. LIC has been sitting on more than 5% of the Coal Indian stock so far

6. Huge reliance on LIC bailouts each time; Coal India has followed other mega issues including the INR 10,000 crore by HDFC Bank, followed by ONGC and PSU banks

7. A 100% government owned shareholding vehicle has indicated that shares which have to be disinvested can be transferred following the budget; this displays as a debt liability on the books of the government as a shareholding company that requires funds to buy the holdings of the government

8. Loans used to finance the purchase of the disinvested shares normaly undergo liquidation unless markets enter the bear stage; LIC would sell blue chip shares like ONGC in anticipation of future bailout roles

9. This is inadequate corporate governance for policy holders funds will bail out the government and this could go wrong for the government in the future

10. LIC should have a lesser role in the disinvestment process for it to be effective

11. The entire disinvestment process would be reappraised and it should be more than just the sale of an asset to tide over difficult times

12. Privatisation programme is needed for raising funds for the exchequer and reforming PSUs

13. PSUs should work towards initiating capital and technology to bring strategic private partners to rejuvenate them; trade unions will supply schemes to safeguard the jobs in the firms

14. The final aim should be divestment of enterprises in sectors such as steel and cement production rather than focusing on improvement of social services such as education as well as healthcare.

Conclusion

LIC has played a large role in the disinvestment process. But this is not exactly the perfect disinvestment model to aim for. The disinvestment process should involve bailouts from non-state actors as well.