It was supposed to be
a nominal divestment of the central government's 5 per cent stake in
Neyveli Lignite Corporation (NLC) to meet the Securities and Exchange Board of India's (Sebi) norm that all central PSUs must have a minimum of 10 per cent public shareholding by August this year.
But it is turning out to be a major issue.
The employees of the public sector unit in Tamil Nadu are up in arms and they have the support of Chief Minister J. Jayalalithaa. She has suggested that the 5 per cent stake offloaded by the Central government can be picked up by a few state PSUs.
By doing so everyone will be satisfied - the central government, the workers and the state government (which is also against the divestment process).
A win-win situation for all? Not quite. Here are three reasons why the Centre should politely decline Jayalalithaa's request:
- While the Tamil Nadu PSUs picking up the five per cent stake in NLC may be legal, it goes against the spirit of Sebi's norm which attempts to create a market for the stock to trade. If state PSUs buy the stake, there will be no actual increase in the free float and Sebi's purpose will be defeated.
- The move could hurt future divestments. Any state government which is opposed to divestment in a central PSU located in its territory will seek to follow Jayalalithaa's example. This will make a mockery of the divestment process with the stake moving from the central government to the state government.
- The money that the central government is expected to raise from off loading its five per cent stake is Rs 460 crore. This is a large sum of money which the Tamil Nadu government, caught in a deep financial crisis should think many times before spending. The money can be used more effectively elsewhere.
By offering to buy the shares, Jayalalithaa, in a way, is undermining her own repeated requests for a special financial package for Tamil Nadu to overcome the acute financial crisis which, in her view, was created by the earlier DMK regime.
PHOTO: Reuters 
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