FinMin’s smart sell-off arithmetic

Semi Column

Finance Minister P Chidambaram's Budget arithmetic could be vastly simpler if the 9.5 per cent disinvestment in NTPC goes through in January. The issue is expected to fetch Rs 13,000 crore. At the current market cap of the company, the prospective sale yields Rs 12,423 crore so even a slight rally from here has a tremendous upside potential. With the just concluded Hindustan Copper sale, NTPC will reach Chidambaram at the halfway mark for the disinvestment target for this fiscal.

No surprises then, why the department of disinvestment has fast forwarded the issue over other smaller ones. The department seems intent to go ahead with the issue in the New Year. Within five days of receiving a Cabinet approval for the sale it has advertised for merchant bankers for the transaction, in the newspapers.

There are several reasons why an NTPC issue is useful. December is the time when most global fund managers shut shop for Christmas and year-end squaring up, leaving very little money on the table. It is also the time when Indian companies pay their third instalment of advance tax, so demand for cash is already at a high with most banks borrowing an average of Rs 1,00,000 crore from the RBI. Also disinvestment secretary M H Khan will retire at the end of November. All said and done it takes some time for a new officer to get the details of the technical work like disinvestment. Plus in a globally uncertain market with the US fiscal cliff still not sorted, it makes sense to push one heavy duty sale in the New Year than depend on several smaller issues before. Those lined up like NMDC, SAIL and OIL have a combined offer size just touching the NTPC float.

But would it again ride on Life Insurance Corporation playing the saviour. The life insurer already owns 6.03 per cent stake in NTPC, which has a total public float of 15.5 per cent. The concentration of risk is becoming too heavy for the financial sector.

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