India To Sell Stakes in Mining, Metals Companies to Plug Deficit

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The Indian government’s much-touted disinvestment plan for this year finally got up on its feet with it selling a 5.6 percent stake in the prestigious Hindustan Copper Ltd (HCL).

today's copper prices - MetalMiner IndXThe latter, a public sector enterprise, is India’s only vertically integrated copper producing company. This is also the first in a series of such off-loading of stakes by the government in other mining, metals and energy companies in the near future.

The sale of the stake got the government about US $144 million. Next month, the government is expected to sell shares in two other blue-chip companies to meet its ultimate goal of raising $5.44 billion through disinvestment in companies it owns majority stakes in by the end of the current fiscal year.

hindustan copper stacks and worker


The government had earlier postponed two attempts to sell the stake in these companies because of the lukewarm investment climate. After the share sale, the government’s equity in HCL came down to 94 percent.

The two companies in which the government will offload some of its stake this December are iron ore miner NMDC Ltd, expected to be 10 percent, and 5 percent in Oil India Ltd. Last month, the government had approved the 10 percent stake sale in NMDC, that hopefully will fetch it about $1.2 billion. NMDC is India’s largest iron ore producer and exporter.

Get current raw materials prices, including iron ore, right here.

The disinvestment, as in the case of HCL, is expected to be through the Offer for Sale (OFS) route, or what is known as the auction method in the capital market.

Besides these two companies, the government has also listed other state-run firms for the disinvestment process for the current fiscal year, including aluminum manufacturer NALCO and the National Thermal Power Corporation.

Some reports also suggested that the government was also actively mulling the sale of its residual stake in Hindustan Zinc and Balco, two former PSUs that were sold to mining giant Vedanta Resources during 2001-2003, in which the government still holds residual stakes.

So, what is HCL going to do with the proceeds?

In an interview with CNBC-TV18, the company’s chairman and managing director K.D. Diwan said the stake sale was successful and that the PSU would fund all its expansion plans through internal accruals.

The government, on its part, needs the funds to curb an ever-burgeoning fiscal deficit. The disinvestment process is an ongoing one. Last year, however, the government managed to raise only about $2.5 billion against the target of $72 billion.

Sohrab Darabshaw contributes an Indian perspective to MetalMiner.

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