Hindustan Copper - One arm is selling and another arm is buying?

Finally government resumed the process of selling family silver to fill the big hole called fiscal deficit. Aim is to generate 30,000 crores through the sale of government shares in PSUs. Last year government aimed 40,000 crores, but managed to get only 14,000 crores. This year also story may not be different.

Hindustan Copper Ltd

Around 800 crores came to treasury from recently concluded sale of HCL shares. At first look, this seems to be a success – after all shares were fully subscribed. But the million dollar question here is, who bought the shares? Whether its FIIs, foreign investors, domestic investors or government companies itself?

According to reports, foreign and domestic investors were not so enthusiastic about it, even after offering a discount of 41% over Thursday’s market price (auction was on Friday).

Kodak securities reports that,

“As per media reports, Life Insurance Corporation, State Bank of India and Punjab National Bank saved the day for the HCL today. During the first three hours, bids worth Rs 31 crore only came from investors and it was only in last 30 minutes that the issue got fully subscribed”.

If it’s true, then on Friday stock markets gave a serious blow to government’s dream of generating 30,000 crores this year through disinvestment.

Most probably what happened here is, in the last minutes Life Insurance Corp, State Bank of India, Punjab National Bank etc invested their own money to save the share sales. This is bad practice, if government's real aim is to generate money from market then it should come from market not from other government owned companies. LIC is one of the rare government owned company which successfully competed with private ones and hold their ground.

In emergency situations, government can use LIC to save the process. But it may not be appropriate to use it every time. Previously, during the auction of ONGC shares also, it was LIC who saved the government.  In short, one arm of government is selling and another arm is buying!!! How can we say that, such types of disinvestments are a success?

Conclusion

The question here is, whether investors are totally disinterested in putting their money on stocks? The answer may be no, it’s tough time, but investors are still active- e.g. Blue Dart Express's (offered a discount of 16%) shares were oversubscribed.

Before going further with the auctions of NMDC and Oil India Ltd (OIL) in December, government needs to sit back and think about valuation and other aspects.

Selling the shares of government owned companies is not a proper way to cover fiscal deficit. It’s not that, government should not sell PSUs at all, it should; but, money coming from there should be used for investments, not for filling holes. What we are currently doing is cooking the seeds for day to day food requirements...!!!

Sajeev.

References

1. Economic Times
2. Kodak Securities
3. Business Standard