•Disinvestment of a percentage of shares owned by the Government in public enterprises emerged as a policy option in the wake of economic liberalization, globalization, and structural reforms launched in 1991. •Initially, it was not conceived as the privatization of existing public enterprises but as limited sales of equity/shares with the objective of raising some resources to reduce the budgetary deficit and ensuring market discipline to boost the performance of public enterprises. •Disinvestment is defined as the action of a government aimed at selling or liquidating its shareholding in a public sector enterprise in order to get the government out of the business of production and increase its presence and performance in the provision of public goods and basic public services such as infrastructure, education, health, etc. •Funds from disinvestment would also help in reducing public debt and bring down the debt-to-GDP ratio while competitive public undertakings would be enabled to function effectively.
METHODS OF DISINVESTMENT
In a strategic sale, management control is transferred to strategic partner and company no longer remains a Government company. In case of PSUs, the transfer of shares involves bringing down Government share holding below 51%. In strategic sale, a sale agreement is signed and Government ensures that the agreement signed with strategic partner properly safeguards the interests of Company, of Government and of Employees. Strategic sale is suitable for non-strategic companies or where Government want to transfer management control to buyer. The successful examples of strategic sale are MFIL, BALCO, CMC, HTL. VSNL, IBP, HZL, PPL, IPCL, etc. One of the significant advantages of strategic sale is the chances of getting maximum price because of transfer of management control. But the process is quite time consuming and has issues relating to management, land & labour to be reserved. In non-strategic companies Government has given more emphasis on strategic sale.
Offer for Sale to Public at Fixed Price: Under this method, an issue of equity shares is made which are held by GOI to public at a pre determined price. Interested party gets the offer of sale. This method is suitable for profit making companies. This is a quite quick and transparent method. Example is offer of 1 million share of VSNL @ Rs.750 per share. •Offer for sale to Public through Book Buildings: Under this method, equity shares of companies under disinvestment are issued to public at large but price is discovered through bidding by interested investors. Bidder making highest bid gets the companies. Precedents of this method are Hughes software Ltd., HCC Technologies Ltd. and Bharati Televentures in private sector. Other methodologies under capital market are secondary market operation, international offering, private placement of equity and auction etc.
The target investor set is institutions under this method. This method is regulated by RBI restrictions on Bank Investments. Under this method, GOI sells shares at a discount to market price. As such no warehouser is interested to invested. There are no examples of this method being implemented in PSUs till now.
REDUCTION IN EQUITY
This method is regulated by Companies Act, SEBI Buyback regulations. •Under this method, company buy its shares back from other shareholders and cancel them. There are two ways further in this method: · Buy-back can be made through tender route with a fixed price. •It can be made through book building where price is determined through bidding by interested investors.
The present disinvestment policy in India has gone under many phases and now the Government has decided the path of strategic sale to be adopted for disinvestment in Public Sector Units (Non Strategic). The Disinvestment process works on three-tier mechanism consisting of CCD, CGD and IMG. Disinvestment Commission to make the process transparent, free from bias gave valuable recommendations regarding valuation of PSUs under disinvestment. Recommendation to standardize the methodologies has also given to facilitate the accurate valuation of a PSU. The financer observed that the Disinvestment and Privatization are useful economic tools. He said „We will selectively employ these tools, consistent with the declared policy‟. The Government has now decided not to privatize profit making PSEs and focus is now on to disinvest non-strategic (not financially sound) companies through strategic sale.