Budget 2024: Govt plans to sell small stakes in Mazagon Dock, IRFC, NFL, RCF

Budget 2024: Govt plans to sell small stakes in Mazagon Dock, IRFC, NFL, RCF

The government plans to sell small stakes in select state-run companies in the rail, fertiliser, and defence sectors, including Mazagon Dock Shipbuilders Ltd, via offer for sale (OFS) in the current fiscal year, according to a senior government official.

The centre is also considering selling small stakes in Indian Railway Finance Corp. (IRFC), National Fertilizers Ltd (NFL), and Rashtriya Chemicals and Fertilizers Ltd (RCF) in FY25, the official said on condition of anonymity.

“The government is likely to continue focusing on OFS as strategic sales are at various stages. Some OFS will happen this year. IIRFC OFS will happen. The government will also sell stakes in NFL and RCF via OFS this year. Discussions for OFS in Mazagon Dock have been ongoing with the defence ministry since last year. The ministry has some reservations against OFS in MDL, which are being resolved,” the official said.

Though the Union Budget may not set a fixed disinvestment target in Budget 2024, it is likely to estimate Rs 50,000 crore under non-debt capital receipts. The pre-budget meetings on disinvestment are likely to be held soon, he said. The total capital receipts include combined estimates of asset monetisation, disinvestment, etc. On the other hand, PSU dividends are given under a separate head under non-tax revenue receipts in the Budget.

"DIPAM’s continued emphasis on OFS reflects a pragmatic approach given the complexities and slower pace associated with strategic sales. Strategic sales often encounter prolonged negotiations and regulatory hurdles, whereas OFS enables the government to quickly divest stakes while retaining control over key public sector undertakings," Kunal Sharma, Partner, Singhania & Co., told Moneycontrol.

The government may decide to dilute 11.36 percent stake in IRFC, fetching the government around Rs 7,600 crore. The government currently holds an 86.36 percent stake in the financing arm of the Indian Railways.

The sale of an 11.36% stake in IRFC is particularly aimed at meeting SEBI’s minimum public shareholding requirement, which mandates that listed companies have at least 25% public ownership. Compliance with these norms is crucial for market discipline and broader investor participation.

"The success of these stake sales will heavily depend on market conditions and investor sentiment. Given its role as the financing arm of Indian Railways and its recent market performance, IRFC is likely to attract substantial investor interest," Sharma said.

MDL is 84.83 percent owned by the government and the Finance Ministry aims to sell up to 10 percent stake in the defence PSU.

The Department of Investment and Public Asset Management (DIPAM) aims to sell a 10 percent of RCF and a 20 percent of NFL worth approximately Rs 1,200 crore.

"While OFS is a practical and efficient tool, its success is contingent on favorable market conditions and effective execution. The government must carefully time these sales to maximise returns, ensuring they align with positive market sentiment. Additionally, robust communication and marketing efforts are essential to attract a broad base of institutional and retail investors," Sharma said.

Further, proceeds from these divestments will aid in fiscal consolidation. Increasing public shareholding in these PSUs can also lead to improved corporate governance and operational efficiency, enhancing their long-term value and competitiveness, he added.