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A view of the parliament building is seen in New Delhi in this February 16,...
Slideshow: Movers and shakers of Indian politics
Fri, Jul 25 04:35 PM
By Charlotte Cooper and Surojit Gupta
MUMBAI/NEW DELHI (Reuters) - Emboldened by winning a confidence vote, the government is expected to revive a privatisation drive, but a looming election means it will only have time for a few small sales rather than any jumbo ones.
The government could do with the cash to offset a hefty subsidy bill that is pressuring its finances, but public offerings of $2 billion or bigger could not be completed ahead of national elections that have to be held by May 2009, bankers say.
A major headwind is weak investor appetite following a 30 percent slump in the stock market this year. The stock market may only be able to absorb offers of up to $500 million, they said.
D.K. Joshi, principal economist at ratings agency Crisil, said the government would offer some stake sales to offset a widening fiscal gap, which rating agencies say could hit 9 percent of GDP this year from a projected 5.5 percent in 2007/08.
"Three to four companies are possible and it could provide funds for infrastructure spending as during times of fiscal stress investment in infrastructure suffers," Joshi said.
"But the timing from the market perspective may not be right as prices are low now and investor appetite is not there in a big way. So we will have to see how they go along."
Newspapers say plans for a jumbo $10 billion initial public offering from Bharat Sanchar Nigam Ltd (BSNL), the top telecom firm by total subscribers, are being dusted off.
But senior bankers say a deal that big is unlikely ahead of the elections.
On the other hand, the sale of some of a government holding of 67.7 percent in Bharat Heavy Electricals Ltd. (BHEL), India's biggest electrical engineering firm, could be on the list of possibles, analysts said.
Repeated previous attempts to sell part of the holding were blocked by the coalition's communist allies. They dropped their support for the coalition, prompting the vote of confidence this week.
Small stakes in listed firms such as Neyveli Lignite Corp, NTPC and National Aluminium Co Ltd, are also possible, analysts say.
"I don't expect $2 billion worth of transactions from a single company," said a senior banker.
But offers of 3 billion to 20 billion rupees ($70 million to $470 million) were possible in the next three to four months.
MODEST EXPECTATIONS
The government of Manmohan Singh -- the original architect of India's economic liberalisation started in the 1990s -- has struggled to sell off state assets since coming to power in 2004.
Under pressure from its communist allies, the coalition scrapped the privatisation ministry, said only loss-making firms would be sold or closed, and it pledged to keep so-called jewels such as Oil and Natural Gas Corp in public hands.
Its communist allies let it sell 10.5 percent in National Thermal Power Corp, which raised about $1.2 billion, and offload its residual stake in carmaker Maruti Udyog, now called Maruti Suzuki India Ltd.
But 2006/07 receipts from stake sales were zero and in 2007/08 that rose to a modest 23.7 billion rupees ($560 million).
Now that it has split from the communists and found new political supporters more amenable to privatisation it faces another potential problem -- the stock market.
Up to January, India's IPO market was thriving. But falling stocks forced mutual fund manager UTI Asset Management this month to defer a $480 million share sale, reflecting weak investor sentiment globally over the state of the world economy.
Although the benchmark index rose nearly 6 percent on Wednesday, the day after the confidence vote, conditions are still uncertain.
"This is short-term euphoria. On a long-term basis whether it could sustain for three to six months is something I would not bet on," said another senior banker who declined to be named.
PUBLIC FINANCES
In theory, the government has an array of state assets it could sell. India has nearly 240 state firms, manufacturing everything from steel to condoms. But many are loss making and most have excess manpower, translating into low productivity.
India's privatisation programme, launched in 1991, has been dogged by political and trade union opposition. Unions fear job losses and politicians want to retain control over state firms.
The main reason for the privatisation programme has been to raise funds to cover a persistent fiscal deficit. Economists say the federal budget deficit goal of 2.5 percent of GDP this year looks ambitious, under pressures from such items as a $17 billion waiver on farmers' debt and potential increases in the salaries of state employees.
Government finances are also under pressure from off-budget items, such as oil bonds it issues to maintain subsidised oil prices in the face of record high world crude prices.
Some expect the government's new ally, the Samajwadi Party, to be supportive.
"The Samajwadi Party is more amenable to see reason and I don't think they will come in the way of reforms," said D.H. Pai Panandikar, president of think tank RPG Foundation.
