Govt stake sales to please market; no deficit cure

UMBAI: Power firm NHPC Ltd will kick off a $1.25 billion IPO next week in the first share sale by a state company since the Congress party's

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unexpectedly strong re-election in May spurred investor hopes for pro-market reforms.

Despite opposition from labour groups and leftist parties, the government is forecast by some watchers to offload roughly $5 billion a year in state shares, which could hearten a bond market worried about fiscal responsibility but do little to address a yawning deficit and $90 billion borrowing plan.

Uncertainty over how stake sale proceeds can be used also clouds the outlook for any benefit to government finances.






"It is not a huge amount given the size of the government borrowing. But I think it could substantially change sentiment in the debt market," said Abheek Barua, chief economist at private sector lender HDFC Bank.

"What the market is likely to price in is the prospect of larger disinvestments going forward," he said.

Investors are expected to lap up shares in government firms, given attractive pricing, a record of outperformance relative to IPOs by private firms, and a roaring stock market run since March that has been fueled by an influx in foreign funds.

NHPC opens its IPO on August 7 in what would be the first for a state firm in India since Feb. 2008. Oil India is expected to follow with a $500 to $600 million issue in September.

Also in the works could be a multi-billion-dollar IPO by telecoms firm Bharat Sanchar Nigam Ltd and secondary offerings by power equipment maker Bharat Heavy Electricals, Rural Electrification Corp, trading firm MMTC Ltd and mining firm NMDC Ltd.

"Government deals typically have done well. Government a couple of times has been credited with reopening the IPO markets," said Vedika Bhandarkar, head of India investment banking at JPMorgan.

The pipeline of equity from state firms promises to top the record $6 billion raised from government asset sales between 1999 and 2004 when the pro-business Bharatiya Janata Party (BJP) was in power. During that period, shares were sold in firms such as Oil and Natural Gas Corp and Maruti Suzuki.

Since then, the government raised just $1.4 billion as allies of the ruling coalition and labour unions thwarted plans for stake sales.

"We could see issuances in infrastructure, power, mining and agricultural sectors followed by banks and insurance companies," said A. Murugappan, executive director at ICICI Securities.