The Cabinet Committee on Economic Affairs is likely to consider on Wednesday a formal proposal to mobilise additional resources through public sector undertakings. Such a policy is expected to cover the shortfall of disinvestment target of Rs 40,000 crore.

The proposed policy aims at enabling the Department of Disinvestment under the Finance Ministry to respond to normal practices in the corporate world, if proposed by the public sector undertakings.

A highly placed source in the Government told Business Line , “The proposed policy is likely to provide two options for resource mobilisation. One could be buyback of shares by government-owned companies. The second option is likely to involve off-market deals for shares of PSUs by financial institutions such as Life Insurance Corporation of India (LIC).”

Under institutional placement, various government-owned or private financial institutions may be asked to bid for shares to be offered. “A group of Ministers is planned to be set up. This group may be asked to fix the floor price for auction,” the source added. Highest bidder(s) will get the shares.

Push for buyback likely

After feedback from various ministries, the Finance Ministry is expected to push for only buyback, not crossholding. Buyback of equities will make the companies part with reserves and surpluses. Under the existing regulations, a company will have to make a provision to buy back not just for a particular stakeholder but for all. Also, it will have to extinguish all the shares bought back within a time limit.

According to the source, a PSU such as SAIL is in favour of buyback but with certain riders, while companies such as NALCO, Hindustan Coppers and Coal India have some reservations. “In fact, the views from various ministries were so divergent that the Finance Ministry had to redraft the entire proposal.”

It is estimated that government-owned companies are sitting on a cash reserve of around Rs 1,80,000 crore.

>Shishir.s@thehindu.co.in

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