The Indian government last week exceeded the disinvestment target of £8 billion set for the current financial year, which ends in March, for the second successive year, with completion of the acquisition of Rural Electrification Corporation (REC) by Power Finance Corporation (PFC) for £ 1.45 billion. The public sector ETF was oversubscribed by about eight times last week against the base issue size of £350 million and the government decided to retain £1 billion. The two transactions helped the government to exceed the target, which included 26 other deals.
Finance Minister Arun Jaitley tweeted, “As against a target of £8 billion for disinvestment for the current year, the divestment receipts have touched £8.5 billion today.” In December, the Union Cabinet had approved the strategic sale of REC's 52.6 per cent holding to PFC, along with the transfer of management control. The government had set a target of raising £8 billion from stake sale in state run companies for the current financial, lower than the £10 billion set for the previous year. The target has been achieved using a number of methods, including the PFC-REC transaction.
Officials had earlier raised concern about the ability to meet the target, given that the process slowed down in the middle of the financial year and the volatility in the stock market also had an impact on the planned follow-on-offer. “The acquisition would enable increased efficiencies in lending processes and policies across both the institutions and would create public value by offering better loan products to the power sector,” PFC said in a statement announcing the completion of the transaction to acquire REC's holding.
It said, “The convergence of the entities would help the power sector reap benefits from a decentralized outreach of REC and a professional project finance expertise of PFC. Further, the ensuing diversification of assets of the group, as well as portfolio risk would help in resolution of stressed power sector assets of the group in a better and coordinated manner.” The ability to exceed the disinvestment target comes as a good news for the government struggling to meet the fiscal deficit target for the current fiscal year.
