Udit Prasanna Mukherji, TNN | Dec 31, 2011, 03.09AM IST
Article from The Times of India
KOLKATA: The decision of not auctioning SUUTI (Specified Undertaking of Unit Trust of India) stake in three corporate biggies - ITC, Axis Bank and L&T - might hit the exchequer hard. It has been learnt that frantic lobbying from some quarters has led to the government decision of leveraging these stocks for buying other PSU shares.
SUUTI holds 11.54% stake in ITC, 23.6% in Axis Bank and 8.3% in L&T. The combined valuation of these shares is little over Rs 32,000 crore at the current market prices. It has assumed significance because a sub optimal mode of selling the shares of these companies could lead to a loss of over Rs 6,000 crore to the exchequer. SUUTI has 89 crore shares in ITC, 5 crore shares in L&T and 97 crore in Axis Bank. So, even a premium of Rs 25-30 over market price could fetch a staggering amount. The pledging of shares can only fetch half of the price, which is Rs 16,000 crore.
"SUUTI has met all the liabilities for which it was floated 7 years back. Now, the government can wind up SUUTI if it wishes to do so," sources in SUUTI said. They added that the holdings in ITC, Axis Bank and L&T constitute 90% of the SUUTI assets now. "Only Rs 1,600 crore payment on account of UTI tax free bond and US 64 are due, which is now being handled by UTI TSL, a wholly-owned subsidiary of SUUTI," they added.
It may be noted that with fears of missing the 4.6% fiscal deficit target for the current financial year in the absence of the Rs 40,000 crore, the government had hoped to raise from disinvestment, the finance ministry is exploring the possibility of pledging or selling shares and assets available with SUUTI to raise funds.
Some financial experts feel that closed door auction after fixing a base price was the best possible way to optimize return from selling stake of these companies. "Closed door auction is the best model to optimize price when there are interested parties. In fact, Rakesh Jhunjhunwala is doing the same for his stake in Aptech," said J Thunuguntla, strategist and research head of SMC Global Securities.
However, there was a strong objection against the idea of auction in some government circles. The argument is simple. Auction of shares could lead to change in management in Axis Bank and destabilize operations in ITC and L&T. The alternative proposals were selling of shares to financial institutions and banks, pledging of shares and selling of shares through public offerings.
SUUTI is practically the promoter of Axis Bank. The financial institutions, as a whole, have 37% in the bank. But if SUUTI stake is bought by an outsider through competitive bidding then the structure of Axis Bank might change. "Axis Bank is doing a lot of government work as it is promoted by financial institutions. If outsiders become owner then it will lose the semi public sector status," a former SUUTI official argued. For ITC, the argument is that British American Tobacco (BAT) is waiting in the wings with over 30% stake. It may try to mop up the SUUTI stake through a front company by quoting a good premium. "ITC has a strong presence now in non-tobacco business but we heard that BAT is only interested in tobacco business, so there will be question mark over non-tobacco business if it gets control. L&T is doing a lot of work for Defence. So, it may not be prudent to allow an outsider to enter its board," the official added.
However, experts opined that LIC, banks, general insurance companies can offer only the market value of these shares. "It is not possible for them to offer a premium. Similarly, by pledging the shares the government can at best get up to Rs 16,000 crore going by the RBI rules. This will not serve the purpose. It has so for got only Rs 1,165 crore out of Rs 40,000 crore target. The question is why government will lose for non public sector companies," the strategist in SMC Global added.
Article from The Times of India
