Indian Government Approves Disinvestment of 10% in SJVNL and 5% in NTPC

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Researched by Industrial Info Resources (Sugar Land, Texas)--In a recent development, the Cabinet Committee on Economic Affairs (CCEA) approved the disinvestment of NTPC Limited (BSE:532555) (New Delhi) and Satluj Jal Vidyut Nigam Limited (SJVNL) (Shimla, Himachal Pradesh). Anand Sharma, Minister of Commerce and Industry, announced that the CCEA had cleared the sale of 10% in SJVNL and 5% in NTPC. However, a decision on the national disinvestment policy has been deferred.

Sources indicate that the equity sale is expected to fetch about $2.15 billion, which will include about $1.85 billion from offloading a 5% stake in NTPC. Following the disinvestment, the government's stake in NTPC will decline to 84.5%. NTPC is one of India's biggest power producers, with market capitalization of about $37.12 billion. Presently, the total installed power generation capacity of the company is about 30,000 MW. Financial experts have observed that this move is expected to increase NTPC's market capitalization and assist in securing funds from international money markets. Earlier, in 2004, the government had sold a 5% stake in NTPC through an initial public offering, which had yielded $1.14 billion. NTPC, which recorded profits of $1.68 billion in 2008-09 and has surplus reserves of about $11.43 billion.

SJVNL is a 75:25 joint venture between the central government and the state government of Himachal Pradesh. The company has paid-up capital of about $886.85 million. Officials indicate that 10% of the central government's stake in the venture is likely to be sold. The sale, which is expected to fetch about $216 million to $259 million, will reduce the central government's stake in SJVNL to 65%. SJVNL officials are confident that this move will help in improving the company's brand equity. SJVNL is proposing to invest $4.96 billion in 4,000-MW hydropower generation projects over the next decade. Presently, the company is developing a 402-MW hydropower project in Nepal and two hydropower projects in Bhutan. SJVNL also has signed an agreement to develop the 1,500-MW Tipai Mukh hydropower project in Manipur in a joint venture with NHPC Limited (BSE:533098) (Faridabad, Haryana), formerly National Hydroelectric Power Corporation Limited.

The proceeds from the disinvestment were to be placed in the National Investment Fund. However, sources indicate that the government is likely to announce a decision later, and funds from the disinvestment now will be placed in the Consolidated Fund of India. Although a formal decision on the disinvestment policy has not been taken, the government is likely to offload its stake in six public-sector utilities soon.

Recently, the government announced that a 5% discount will be provided to individual and small investors purchasing shares in public sector utilities. This is expected to help small investors participate more actively in the public sector disinvestment process. Earlier, the IPO issue of Oil India Limited (BSE:533106) (Noida, Uttar Pradesh) and NHPC, which yielded $1.8 billion, had very little public participation.

The Indian government is now focusing on expediting the disinvestment program to boost efforts to overcome the fiscal deficit of 6.8% that is forecast for 2009-10. In financial circles, the fiscal deficit is considered to be at its highest in the last 16 years. A recently released economic survey has suggested that to reduce the fiscal deficit, the government should raise about $5.39 billion per year through disinvestment.

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