Govt to sell stake in Axis Bank today

The Specified Undertaking of Unit Trust of India (SUUTI) is likely to sell part of its equity holding in Axis Bank on Friday. The sale of the Government’s residual stake in the bank, a non-government entity, is expected to fetch ₹5,450-5,800 crore.

SUUTI currently holds 20.72 per cent in Axis Bank. The proposal is to sell a little less than half of this stake through block deals on stock exchanges.

Three merchant bankers, JP Morgan India, Citigroup Global Markets India and JM Financial Consultants, have already been appointed to facilitate the sale.

However, it is not clear whether the shares will be sold at a discount or not. If they are sold at a discount, it could be up to 5 per cent of Thursday’s closing price of ₹1,356.85 on the BSE, a drop of over 2 per cent against Wednesday’s closing price.

Financial institutions such as LIC are likely to buy the shares. As of December 31, 2013, LIC held 9.32 per cent in the bank. Other state-owned insurers such as General Insurance, New India Assurance and Oriental Insurance also hold shares. SUUTI was formed in 2002 after the assured-return schemes of UTI were hived off. It also holds stakes in L&T and ITC on behalf of the Government.

In 2012, the Government decided to wind up SUUTI. However, this decision was reversed on January 9 by the Cabinet to clear the decks for the sale of its stakes in Axis Bank, L&T and ITC. To begin with the Government has decided to go ahead only with the Axis Bank stake sale.

This sale is critical for the Government, which had announced in last year’s Budget that it was targeting revenues of ₹14,000 crore through the sale of residual stakes in Axis Bank, Hindustan Zinc and Balco. The target has since been scaled down to ₹3,000 crore. The HZL and Balco stake sales have already been deferred to next fiscal.

The sale in Axis Bank is also critical to the Government’s efforts to keep the fiscal deficit within the revised target of 4.6 per cent of GDP. Since tax revenue is estimated to be lower than the target, the Government is depending on non-tax revenue, such as proceeds of divestments in Central Public Sector Enterprises and non-Government Companies.

So far, the Centre has managed to get over ₹10,000 crore through disinvestment against the revised target of ₹16,027 crore. Now, its hopes are pinned on the CPSE Exchange Traded Fund, which is already open and getting a good response.