Stake sale setback for India
Mumbai, April 7, 2012
India is not making life easy for itself as it looks to sell off stakes in state companies to help plug a yawning budget gap, with New Delhi's own policies battering sentiment towards government enterprises even as it readies more for market.
This week the government ordered state-run Coal India to sign guaranteed supply pacts with power producers at below-market prices, raising the hackles of British activist investor The Children's Investment Fund Management (TCI).
TCI, which owns one per cent of Coal India, the world's largest coal miner, plans legal action against it for not protecting minority shareholder interests.
The coal order follows a proposal in last month's budget to lift tax on oil production that will knock $978 million from Oil and Natural Gas Corporation's (ONGC) pre-tax profit.
That came weeks after a messy government selldown of a $2.5 billion stake in ONGC that ended up mostly in the hands of a state insurer.
"It will be difficult for the government to find buyers of shares in the public sector firms after the recent decisions," said Juergen Maiar, a Vienna-based fund manager with Raiffeisen Euroasien Aktien, which owns Indian shares worth $300m, including a stake in ONGC.
"The interference by majority shareholders is not new, but how can the government set a very high divestment target and take decisions that will definitely hit companies' profit," said Maiar, who does not plan to add to his state holdings.
The budget made headlines with provisions that could retroactively tax long-completed mergers, potentially putting Vodafone back on the hook for more than $2bn in tax, despite a win in India's Supreme Court in January.
The British mobile operator had fought a five-year legal battle against the tax demand over its acquisition of Hutchison Whampoa's Indian mobile assets in 2007.
Uncertainty over another budget proposal that could tax foreign institutional investors has also spooked overseas funds, which typically buy the majority of large Indian equity sales.
"It's counterintuitive to see the government making life difficult for public sector companies, and foreign investors for that matter, while it is in desperate need for cash and foreign funding," said Michiel van Voorst, a fund manager at Robeco in Hong Kong.
India, expected to struggle to meet a target to cut its fiscal deficit to 5.1 per cent of GDP from 5.9pc, aims to sell Rs300 billion ($5.9 billion) of state shares this fiscal year after raising just Rs140 billion in the year just ended, less than half its Rs400 billion goal.
The target looks harder to reach after Bharat Heavy Electricals, India's biggest power equipment maker, this week withdraw plans for a share sale expected to raise roughly $1 billion for the government.-Reuters