Emerging Markets Roundup: India

PRIVATIZATION PROGRAM FAILS TO MEET TARGETS

 

By Aaron Chaze

 

The Indian government pushed to meet targeted privatizations for the 2011–2012 fiscal year.

 

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Powering up India’s thermal power plants

The Indian government gave a final—and less-than-successful—push to meet its targeted sales of shares in government-run companies for the 2011–2012 fiscal year. Against a target of $8 billion the divestment program had only raised $250 million by the end of February. As a result, the government rushed through the sale of 5% of equity of oil and gas producer ONGC in March. It used a one-day auction method in which shares are sold to the highest institutional bidders, but received bids for only 420.4 million shares—or roughly 98% of the total offer—at the floor price of R290 ($5.9) a share. Plus, a big portion of the shares were taken up by state-owned entity Life Insurance Corporation of India. The government’s insistence on a 2.3% premium to the prevailing market price hurt demand for the stock.


The government is considering ways to pull cash out of state-owned companies as it faces a widening fiscal deficit, either through share buybacks or through special dividends. Just six top-listed public sector companies, National Thermal Power Corporation (NTPC), BHEL, ONGC, National Mineral Development Corporation, Coal India and the Steel Authority of India, have a cumulative cash balance of $32 billion. BHEL announced a special dividend of R2.72 per share on March 1, yielding almost 1% of market cap. SAIL and Coal India are scheduled to announce special dividends by mid-March.


NTPC, India’s largest thermal power producer, will reportedly invest nearly $5 billion to set up two greenfield super-thermal power plants and expand another in the eastern state of Orissa. The projects will raise thermal power generation by 4,400 MW in the state, where NTPC currently has 3,500 MW of capacity. The NTPC announcement coincides with the government’s 12th five-year investment plan, which has targeted the power sector as a key investment focus.

 

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