The finance ministry is going ahead with its ambitious disinvestment target despite managing to rustle up a mere 3% of the budgeted amount, just three months before the fiscal year draws to a close.

It is planning to raise the budgeted 40,000 crore by monetising the government’s equity holdings in Special Undertaking of UTI (SUUTI), selling residual holdings and divesting stakes in some companies to financial institutions.

“We are confident that the SUUTI mechanism will be able to raise a substantial amount,” a finance ministry official told ET.

The move should help calm bond markets jittery over the prospect of sovereign borrowings overshooting even the revised target by a big margin after the government advanced a 11,000-crore auction by a week.

Under the new plan, which will be put up before the Cabinet, the government proposes to transfer the equity holdings of SUUTI, which include 27.02% in Axis Bank, 11.89% in Larsen & Toubro and 8.99% in ITC, to a holding company. These stakes are worth more than 32,000 crore at current prices.

North Block is looking at two options: it can offload stake in this holding firm to FIs and public sector banks and some cash-rich PSUs and raise as much as 20,000 crore. Alternatively, the holding company can issue fresh equity to these institutions and use the proceeds to buy government equity in state-run companies. But there is no proposal to pledge shares. “These assets will not be pledged,” the official said.

The ministry is also looking to sell its residual stakes in Balco (49%) and Hindustan Zinc (29.5%). The HZL stake alone is worth more than 15,000 crore.

“A credible plan for disinvestment can convince and calm markets,” said Abheek Barua, chief economist, HDFC Bank. Up to 20,000 crore of additional borrowing could be taken up by the market without causing much turbulence, he said.

The finance ministry has already announced an extra borrowing of 53,000 crore, but the market expects the amount to overshoot even the revised target by nearly 30,000 crore after the government admitted it will miss the deficit target of 4.6% of the GDP.

On Monday, the 10-year bond yields firmed up to 8.505% from 8.482% after the government advanced its borrowings.

SUUTI was formed after the bifurcation of UTI Mutual Fund in 2003-04. All NAV-based schemes were transferred to UTI AMC while the assured return schemes and other assets and liabilities were transferred to a new undertaking, SUUTI.

Source:

ET