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Defer disinvestment in OIL, ONGC: Commission

The Disinvestment Commission has said the proposed disinvestment in Oil India Limited and Oil and Natural Gas Corporation Limited should be deferred and suggested that no disinvestment should be made in Railway India Technical and Economic Services Limited till the uncertainty surrounding the Iraqi dues was resolved satisfactorily.

Releasing the Commission's third report in New Delhi on Friday, its chairman G V Ramakrishna recommended the induction of a strategic partner in the public sector Kudremukh Iron Ore Company Limited. He also said the shares of Mahanagar Telephone Nigam Limited and Container Corporation of India could be sold up to 49 per cent in a phased manner including offering of shares of MTNL to foreign investors.

The Commission has so far examined 15 public sector companies, out of the 50 referred to it. Out of the 15, the Commission has suggested strategic sale of five companies and offer of shares in case of three companies. However, the offer of shares at a later date was recommended in case of two companies while no disinvestment was suggested for one company. Outright sale was recommended in case of two companies while it had deferred its decision in case of two companies.

Ramakrishna said the Commission has expressed concern over the delays in implementing its recommendations on individual public sector units, particularly where the government's shareholding had to be reduced below 50 per cent or it involved strategic sale.

He said the delay may adversely affect negotiations which the PSU concerned might be carrying on with regard to joint ventures, long-term collaboration and similar other arrangements.

The Commission chairman suggested that there was a need to reduce the time lag between the submission of reports by the commission and the government's decision thereon. The Commission would like to point out that unless there is ''speedy implementation of the recommendations made in successive reports of the commission, it would be difficult to achieve disinvestment of the order of Rs 4,800 crore as envisaged by the government for 1997-98 besides the other objectives of the disinvestment process itself,'' he added.

Ramakrishna also expressed concern over the disinvestment in some loss-making PSUs without reference to the Commission. He said, ''This will not only be contrary to the major objectives and terms of reference of the Commission but also prevent the Commission from taking a coordinated view of disinvestment in PSUs in accordance with a broad-based strategy.''

The Commission noted with concern that even where disinvestment has already taken place, there was no change in the composition of board to give representation to the non-government share-holder.

In order to improve the investors's perception of PSUs and to enhance share value in subsequent investment, it was necessary to induct representatives of non-government share-holders immediately by amending the articles of association, where necessary.

The Commission has also recommended induction of experts and professionals from outside as non-executive directors to inspire investors's confidence in the disinvestment process, Ramakrishna said.

He said the Commission was happy to note the government's move of giving greater autonomy to nine selected PSUs. The Commission has already made recommendations for graded delegation of autonomy, he added.

Ramakrishna said the government holdings in Concor may be restricted to 10 million shares and the company may go in for a public issue of 12.5 million shares, to bring down the government holding to around 51 per cent.

It also recommended that a book-building process be adopted to make institutional investors disinvest in the Indian market, which could be followed with a retail offering to small investors at a discount of 10 per cent. The company can also join the National Securities Depository Limited before any issue is contemplated from either the company or from the government.

Small investors should be allowed to buy shares in quantities much less than normal tradeable lots, which can also be traded on National Securities Exchange with discount for odd lots.

With regard to KLOCL, Ramakrishna said the Commission has recommended strengthening the management of the company by appointing a competent chief executive and inducting competent professionals from outside on the board.

The Commission also favours the induction of a strategic partner into the company by offering 30 per cent of equity. The government may also enter into an agreement with the strategic partner providing for a further dilution of government equity to the extent of 43 per cent within two years through a combination of further offer of equity shares of 10 per cent to the strategic partner and public offer of balance to domestic institutional investors and real investors. This would leave 26 per cent of the equity with the government, Ramakrishna added.

Such phased disinvestment, he said, would enable the government to realise a proper value of its shares.

With regard to the MTNL, the Commission has pointed out that 34.27 per cent shares of the company have already been disinvested leaving a balance of 14.73 per cent or 88.3 million shares for disinvestment. The commission has recommended a global depository receipts issue of 60 million shares (10 per cent). After the GDR issue, a domestic offer of balance 28.3 million shares may be made to the institutional investors and small individual investors at a discount price over the institutional prices.

The Commission noted that the MTNL has an impressive track record and was a ''strong performer'' in the past 10 years. It recommended full autonomy to the board to enable it to conduct its operations successfully in the increasingly competitive environment.

As for OIL, the commission recommended that disinvestment of government shares as also the company's own initial public offer need not be considered for the present. This can be considered after a year or so when the company's own prospects would be clearly established through the outcome of exploration activities in North Brahmaputra area and the government's policy on administrated pricing mechanism.

Ramakrishna said the scope for disinvestment of government shares could be determined after balancing the requirement of the company funds. Any disinvestment prior to it would result in a loss to the exchequer as an announcement regarding the dismantling of APM would significantly improve the share value. The commission would like to review the position after a year and make specific recommendations on disinvestment in the company.

In ONGC's case, the Commission has suggested reviewing the position from time to time and making recommendations at the appropriate time considering various factors.

With regard to RITES, the Commission feels that there is unlikely to be favourable response from small investors or institutions to a limited offer of shares in the company. Therefore, it did not recommend any disinvestment.