Coal India stake sale an attempt by government to bridge yawning revenue gap

Facing the ignominy of missing the disinvestment target for the sixth year in a row, the government on Wednesday approved the offer for sale of 10 per cent stake in Coal India Ltd, one of the country's highest dividend paying companies.  

Finance Minister Arun Jaitley had set a steep disinvestment target of Rs 69,500 crore for 2015/16, notwithstanding the unimpressive record of achieving these targets.

So far, the government has raked up a mere Rs 12,600 crore - just 18 per cent of the target - through stake sales in Rural Electrification Corp, Power Finance Corp, Dredging Corp and Indian Oil Corp.

The most recent of these - the 10 per cent divestment in IOC in August - happened on a day of bloodbath at Dalal Street with the Sensex crashing by 1,624 points, losing 6 per cent in the process and spooking retail investors. Less than a fifth of the quota reserved for them found takers and the issue was bailed out by Life Insurance Corp.

Barring 2012/13, the record is pretty bleak. The proceeds in 2011/12, 2013/14 and 2014/15 were less than half the initial target; 2010/11 was only slightly better and only in 2012/13 did the government come even close to meeting its target.

Perennial shortfall puts pressure on balancing the accounts and exacerbates fiscal deficit - the difference between how much the government earns and spends.

A repeat is almost a foregone conclusion unless markets rally dramatically. Since August 24, when the offer for sale of IOC shares hit the bourses, markets have remained volatile and not firmed up significantly. Yet, a 10 per cent stake sale of Coal India will give the government some breathing space. Of course, the stake sale might still need to be bailed out by LIC, in which case it will just be a matter of transfer of money between two government-owned companies.

At the current rate, the stake will generate Rs 21,157 crore for the central exchequer. This is marginally less than the Rs 22,557 crore - the highest amount ever from a single PSU stake sale - generated for a similar offer for sale in January but it would be enough to prop up revenues from disinvestment for the first time at over Rs 30,000 crore for the year.

Analysts, however, say unlike in the past, a Cabinet approval today is no guarantee of an impending divestment. The government already has a pipeline of over 20 public sector undertakings including 10 per cent stake sale each in Oil India Ltd, IOC, National Aluminium Company Ltd, National Mineral Development Corp, besides 5 per cent in National Thermal Power Corp, Oil and Natural Gas Corp and Bharat Heavy Electricals Ltd, for which it has prior cabinet approval.

"The market may also not be ready for such a large 10 per cent offer for sale," an analyst said. "The commodity cycle is down and coal has a bad name for being a pollutant. Foreign investors may need to be convinced and I will be surprised if the sale happens before 2016."