Govt to buy its own stake in 7 sick cos for Re 1

FP Editors Jul 23, 2013

As a promoter and owner of companies, the government has a number of conveniences, the most important being it need not be bothered about corporate governance at all.

A number of instances in the past have proved that and state-owned LIC’s is a classic case. There have been umpteen instances when the insurance giant was forced to buy stakes in public sector companies and banks only to save the government’s face. (Remember theONGC stake sale a couple of years back in which LIC had to subscribe to 90 percent of the shares offered?)

Reuters

The government is once again planning to make use of its convenience of being a promoter. Hard pressed to meet the Securities and Exchange Board of India’s deadline on cutting promoter holding, the government has devised a strategy to buy its own stake in loss making companies for just Re 1 per share.

According to a report in theEconomic Times, the government is planning to set up a fund especially for this. 

The fund will buy shares of seven loss making companies namely,

 Scooters India, HMT, 

Hindustan Photofilms, The Fertilisers and Chemicals Travancore Ltd (FACT),

 Andrew Yule, ITI Ltd and State Trading Corporation.

As per the Sebi directive, public sector companies should have at least 10 percent public holding by 2 August.

The government is talking to the market regulator to treat the arrangement as an institutional placement, the report says quoting a government official.

But what is the logic behind the move?

“The government is hopeful that some of these companies will turn around and, hence, there is no need of a fire sale. At the opportune time, we will divest our stake in these firms,” the official has told the newspaper.

Should we say it is a smart move though at the cost of corporate governance?

 Not yet because there is no reason to believe yet that FACT, ITI etc will turn around in the near future.