No more ETF route for minority stake sale; Air India, BPCL strategic sale by June

The Department of Investment and Public Asset Management (DIPAM) has said that that the government will not go for Equity Traded Fund (ETF) mode of minority stake sale in the Central Public Sector EnterpriSes (CPSEs) in the next financial year as well as in the years to come owing to the "opportunistic behavior" of the market to these offerings, which dents long term valuation of the CPSE stocks. 

The government will also discontinue CPSE and Bharat 22 ETFs which were lapped up by the market when they were launched a couple of years back. DIPAM has also set a target of first quarter of 2021-22 for privatisation of Air India and BPCL. 

DIPAM Secretary Tuhin Kanta Pandey told BusinessToday.In, "We have stopped the strategy of the ETF route to disinvestment. Even the Bharat 22 and CPSE ETFs have been stopped. We have not had new offerings of the ETFs in the current financial year and we will not go for it in the next financial year and also going forward." 

Pandey said that a lot of opportunistic behavior has been witnessed around the ETFs which impact the long-term valuation of the CPSE stocks. 

"We have to see it from the point of view of the market value of the CPSE stock. ETF churn was too high. People would bag it at discounted price and sell it to AMC in a month and exit. So there is a lot of opportunistic behavior visible in ETFs, which was not in the interest of the long-term investors. A lot of hedge funds also got into this," Pandey added. 

The government believes that this has jeopardised value of the public sector firms. "This has impacted valuation. If you track Sensex and BSE PSU index since 2017, you will see a fair amount of diversion. While the Sensex is rising, the BSE PSU stocks are falling," Pandey added.

Even though the government has put the ETF mode of minority stake sale in the government companies on the backburner for now it will keep tapping in on the IPOs. However, the larger agenda is to push the pedal on strategic disinvestment. 

"Minority stake sale has taken us to a level, but that's it. You cannot have one strategy going on ad infinitum. What is important is the reform intent of the government behind disinvestment. Disinvestment is not a fiscal plugging number. It can't be viewed that way. If that is the way then you do not care for the investors," Pandey added. 

"Finance minister has clearly announced the strategic disinvestment in the budget. It is not going to distort the markets or create a price overhang. We are on the difficult path. It is a difficult thing to sell a company," Pandey added.  

Being asked about the timelines for the mega strategic disinvestment which have not yet seen the light of the day, Pandey said that wherever the expression of interests are in advanced stage like Air India and BPCL, they will be first quarter target. 

Speaking about the Rs 1,75,000 crore target for disinvestment in 2021-22, the Dipam secretary said that the target is realistic while agreeing that the target for the current financial year was "ambitious". 

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