As announced in the budget, government is now open to bringing its stake below 51% in state-run firms. How will this work?
We are actually shedding this old thought that 51% is needed to retain control. The marriage between control and 51% is separated for the first time. We have decided to go below 51% and open much larger investment space for people to come in, including international funds, which is needed. Today, there are a lot of professionally run companies where promoters don’t even hold 2-3% and if you look at Sensex 30, in around 18 out of 30 companies, promoter group holding is below 40%.
But in some cases you have said that this 51% will include the holding of other state-owned entities. Will you nudge firms like LIC to hold more?
Many a times we have seen that a large equity stake is held by public financial institutions or there are cross holdings, and that space is blocked. It leaves very little float for people to come in. International funds that are looking at these companies give up on account of very little float being available. Now that larger float is available with the new definition of 51% itself (sovereign holdings to include those by state-owned financial companies), going below that level increases the available float even more. Last year or the year before that very little stake was bought by LIC. This is complete misinformation.
Will the state going below 51% ownership change the nature of a state-run firm?
It may or may not be a government company depending on the type of ownership. A government company under Section 245 of the Companies Act has its own definition. For running a company efficiently and otherwise it has nothing to do with being a government company. When we set up these companies, we provided a large amount of equity at that point of time because nobody else was willing to put in equity in say a refinery or a steel plant. Over a period of time we have consciously taken out our equity because people are willing to buy. Case in point is that we got Rs 1.33 lakh crore of subscription but we could issue share worth only Rs 45,000 crore in Exchange Traded Funds, which means there is more flow which wants to come in.
Will you keep management control or cede it at a premium at a later stage in these firms?
There is no problem in ceding management control with say a 40% shareholding. If you are retaining management control, obviously this means you are controlling the board and you will appoint whosoever you want to. If we cede control, we will do it a through a transparent, strategic disinvestment programme.
How about Air India?
We will like to do Air India much faster as we have done the groundwork. Last year we were in crude volatility stage which was quite unprecedented, and that also coincided with exchange rate volatility, and subsequently huge liquidity issues. The general feeling is that if people want to have full (100% stake sale) let them have it.