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Govt looks to cut stake in select state-run entities to up to 26%

Dept of investment & public asset management has been asked to formalise a note by the end of this month.

, ET Bureau|
Updated: Jul 22, 2019, 06.19 AM IST
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Experts, however, opine that the government should not hold on to 26% threshold if it is looking to give up management control.
NEW DELHI: The government is looking to pare down its stake in select state-run entities to up to 26%, setting the stage for some big-ticket strategic sales.

A draft note will be put out for consultation before the proposal is finalised, a government official told ET. The department of investment and public asset management (DIPAM) will be asked to formalise a cabinet note by the end of this month, the person said. The move, if implemented, will help create more options for the government to achieve its disinvestment target of Rs 1.05 lakh crore for the current fiscal.

Threshold of 26% is being considered as the company law allows a shareholder with stake of over 25% to block a resolution in a company, the official said.

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In her budget speech on July 5, finance minister Nirmala Sitharaman had said the government would modify the present policy of retaining 51% government stake in state-run firms to retaining 51% stake inclusive of the stake of government-controlled institutions.

This means that companies in which public institutions such as the Life Insurance Corporation of India have stakes, the government will slash its own holding to below 51%.

In a post budget interaction with ET, Atanu Chakraborty, secretary at the investment and public asset management department, had noted that the government has for the first time separated the marriage between control and 51% stake. “We have decided to go below 51% and open much larger investment space for people to come in, including international funds, which is needed,” he had said.

Chakraborty had also said promoters don’t even hold 2-3% in a lot of professionally run companies, and in around 18 Sensex companies, promoter group holding is below 40%.

The official cited earlier said the government can command a premium for its 26% holding if it decides to exit the firm at a later date. Experts, however, opine that the government should not hold on to 26% threshold if it is looking to give up management control.

"Look what happened in the case of Air India," said MP Shorawala, former independent director with state run Concor. Last year, the government had invited expression of interest (EoI) to sell 74% stake in the national carrier but no investor turned up.
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