Government may sell Tata Communications, IDFC stakes

NEW DELHI: Infrastructure funding major IDFC and telecom company Tata Communications are the latest on the government's radar to sell stakes to raise funds for social-sector programmes while keeping fiscal deficit under check.
To monetize its minority holding in these two and several blue chips, the Centre is considering floating an exchange-trade fund, in the same lines of an ETF it launched last year for public sector enterprises.
The Centre holds 26.12% of Tata Communications, the erstwhile Videsh Sanchar Nigam Ltd that was among the first few companies the government had privatized. In IDFC, it owns a 16.41% stake. At Tuesday's stock prices, the government's stake in the two companies is worth about Rs 7,750 crore.
"Some suggestions have been made and are being deliberated upon," said a senior government official. It would make sense to even add stocks held by the Specified Undertaking of the Unit Trust of India (SUUTI) to such an ETF, this official said.
SUUTI, which was created to take over part of the assets and liabilities of the now-defunct Unit Trust of India, holds an 11.27% stake in ITC, 8.18% in L&T and 11.66% of Axis Bank. Last year, the government called initial proposals from asset management companies to create and launch an ETF with shares held by SUUTI and of some Central Public Sector Enterprises (CPSEs). Seven firms had submitted bids, but the government didn't pursue the matter further.
"This can be re-looked at. There are various combinations and they can also be merged with a new ETF for CPSEs that is being looked at," the official said.
The government believes a mix of stocks from blue-chip private sector companies and state-run entities would entice investors more than a pure-play public-sector fund.
ETFs, which hold a bunch of stocks from different companies, are similar to mutual funds. However, ETFs are traded like a stock on the exchange with its price moving through the trading day, unlike mutual funds that are traded at the end of the day at their net asset value. Since there aren't any active portfolio adjustment in ETF, its operating cost is usually lower than mutual funds.
Of the Rs 69,500 crore disinvestment target for the current financial year, the government proposes to raise Rs 41,000 crore from selling stake in companies it controls. The rest is expected to come from selling shares of companies where it holds minority stakes: Hindustan Zinc, Balco Bharat Aluminium and now these two, Tata Communications and IDFC.
IDFC holds an in-principle banking license from the Reserve Bank of India. The government and IDBI Bank were the sponsor shareholders of IDFC. The government brought down its stake from 34.91% through IDFC's initial public offering in 2005.
In the case of Tata Telecommunications, there are some land issues which are still to be resolved. In 2002, the government sold a 25% stake in the then VSNL to Tata Group company Panatone at Rs 1,439 crore. The plan at the time was to take out surplus land (then valued at Rs 778 crore) from VSNL and restrict use or sale of the company's land through provisions in transaction documents.
"That issue still needs to be resolved," said another official aware of the developments.
Meanwhile, the government has already initiated talks with the labour ministry to persuade retirement fund body Employees Provident Fund Organization (EPFO) to invest a portion of its funds in exchange traded fund of PSU stocks.
Last week, Divestment Secretary Aradhana Johri said her department was in discussion with both the labour ministry and EPFO on the matter.
EPFO has a corpus of about Rs 6.5 lakh crore with average annual deposit of Rs 80,000 crore.
"We have to write formally to them so that they invest in CPSE ETF. I think they will be agreeable to invest in the CPSE ETF," she had said. The current CPSE Exchange Traded Fund was set up in 2014 and is an open-ended scheme that consists shares of 10 major PSUs, including Oil & Natural Gas Corp, GAIL India, Coal India, Rural Electrification Corp, Container Corp, Bharat Electronics and Engineers India.
Last year, the government raised around Rs 3,000 crore through the ETF.
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