New deadline for SoEs' going public
Wednesday, 7 July 2010
THE plan of action, as was earlier announced by the ministry of finance (MoF), for offloading a part of the stakes of state-owned enterprises (SoEs) through the bourses has remained inoperative, for one reason or other. In the face of persistent demand from the investors and the bourses, the ministry had promised to offload shares of, at least, 26 SoEs by June last. It also requested the ministries controlling the SoEs concerned to make necessary preparations. But the finance ministry's move faced stiff opposition particularly from the ministry of industries (MoI) on the plea that off-loading of the shares of the SoEs under its control would stir labour unrest. Though other ministries concerned have not opposed the move openly, they are found to be dragging their feet on the issue on different pretexts.
The MoF, according to a report published in this paper a couple of days back, sent a tough-worded official communication last week to the ministries controlling the SoEs that were slated for offloading, asking them to do the needful to meet a revised deadline. It made it clear in the letter that the issue might be brought to the notice of the Prime Minister if the ministries concerned were found unnecessarily delaying the offloading process. The offloading plan of the MoF includes divestment of 49 per cent stake of some SoEs going to the bourses for the first time and 25 per cent more stake of four already listed SoEs under the control of the MoI. Allegations have it that the ministries and the corporations concerned are opposing the finance ministry's divestment move for fear of losing their control over the units. Going public on the part of any entity requires transparency and accountability -- the factors that the bureaucracy and the management of the public enterprises loathe most.
The divestment move, if carried forward in a transparent process, can help yield at least a couple of benefits. It will facilitate the availability of a large volume of stocks to a market that is devouring everything coming on its way. It will also make available to the government a sizeable fund that could be utilised for implementation of a good number of development projects. Understandably, one ministry cannot impose its decision on another ministry. The implementation of collective decisions of the cabinet of ministers, headed by the Prime Minister, is mandatory for each and every ministry and entities under its control. The finance minister has repeatedly mentioned about the steps to offload stakes of 26 SoEs through the stock market. His latest budget speech is also a pointer to that. It is, thus, assumed that the move has the approval of the government at its highest level.
It would not be, however, out of place here to mention the inadequate and uneven flow of new issues from the private sector into the market that has surpassed all previous records, in terms of value and volume. The bourses, merchant banks and asset management companies have not been aggressive enough to woo many potential private local and foreign companies to the market. Many private companies, rightly or wrongly, find the incentives not attractive enough, considering the hassles and regulatory scrutiny that the companies, as listed entities, have to undergo during floatation of initial public offerings (IPOs) and beyond. There is no denying that most shares are now over-priced, mainly because of the flow of a large idle amount of funds belonging to both financial institutions and individuals. There should be a steady flow of new issues into the market to keep the situation under control. The government has to offer some more fiscal incentives to the listed issues in order to make that happen.
The MoF, according to a report published in this paper a couple of days back, sent a tough-worded official communication last week to the ministries controlling the SoEs that were slated for offloading, asking them to do the needful to meet a revised deadline. It made it clear in the letter that the issue might be brought to the notice of the Prime Minister if the ministries concerned were found unnecessarily delaying the offloading process. The offloading plan of the MoF includes divestment of 49 per cent stake of some SoEs going to the bourses for the first time and 25 per cent more stake of four already listed SoEs under the control of the MoI. Allegations have it that the ministries and the corporations concerned are opposing the finance ministry's divestment move for fear of losing their control over the units. Going public on the part of any entity requires transparency and accountability -- the factors that the bureaucracy and the management of the public enterprises loathe most.
The divestment move, if carried forward in a transparent process, can help yield at least a couple of benefits. It will facilitate the availability of a large volume of stocks to a market that is devouring everything coming on its way. It will also make available to the government a sizeable fund that could be utilised for implementation of a good number of development projects. Understandably, one ministry cannot impose its decision on another ministry. The implementation of collective decisions of the cabinet of ministers, headed by the Prime Minister, is mandatory for each and every ministry and entities under its control. The finance minister has repeatedly mentioned about the steps to offload stakes of 26 SoEs through the stock market. His latest budget speech is also a pointer to that. It is, thus, assumed that the move has the approval of the government at its highest level.
It would not be, however, out of place here to mention the inadequate and uneven flow of new issues from the private sector into the market that has surpassed all previous records, in terms of value and volume. The bourses, merchant banks and asset management companies have not been aggressive enough to woo many potential private local and foreign companies to the market. Many private companies, rightly or wrongly, find the incentives not attractive enough, considering the hassles and regulatory scrutiny that the companies, as listed entities, have to undergo during floatation of initial public offerings (IPOs) and beyond. There is no denying that most shares are now over-priced, mainly because of the flow of a large idle amount of funds belonging to both financial institutions and individuals. There should be a steady flow of new issues into the market to keep the situation under control. The government has to offer some more fiscal incentives to the listed issues in order to make that happen.