Press Release
August 4, 2009
CNI Research undertakes a study on “Mandatory 25% liquidity, cash stripping and market conditions”
Analyses the effect of the mandatory 25% liquidity on markets and the cash reserves available with PSU stocks lined up for disinvestment
CNI Research Limited, the leading BSE listed research company that focuses on small & mid-caps, undertook a study on ““Mandatory 25% liquidity, cash stripping and market conditions”..
The Indian market regulator had framed rules to make it mandatory for all listed companies to have public holding of at least 25% which means promoters having stake above 75% will have to dilute their holding to that extent. But this did work in India as there were some listed Government companies where Government holding was as high as 99% and selling Government shares means disinvestment which never found any response from the ruling Government in the absence of a clear majority. The earlier Governments had limited success in reducing stake in few companies.
With an almost clear mandate and governments resolve to garner funds through disinvestment, the FM in his speech has said that SEBI will address this issue by asking all companies to have public holding at 25%. This includes the Government companies. It is understood that the time limit is 2 years from now.
CNI study looks at the ramification of this provision and tries to understand whether this can happen in India at all? CNI undertook a study of all leading companies where the promoters holding is in excess of 75% and we have found that there are 150 such companies in which the holding of promoters is in excess of 75% and this include 30 PSU companies.
This list of 30 PSU stocks having promoters stake over 75% will be automatic candidates of disinvestment over a period of next 2 years and the amount could be as high as Rs 118561 crs which will reduce the deficit substantially. There is a great apprehension in the market about how the market will absorb this magnitude of divestment. Yes, it is true that market may not absorb the same unless market goes into a territory where Sensex becomes 25000 or so and Government comes with some plan to tap the foreign hot money.
“If one IPO in China can garner close to 7.3 bn USD, then with great quality paper like India PSU stocks, we could attract similar kind of euphoria provided the policies are right. Therefore it all depends on Government policies and future market course”, says Mr. Kishor P Ostwal, CMD, CNI Research Limited.
A study of the cash lying in the Balance Sheet of the PSU stocks lined for disinvestment shows that Coal India has Rs 4660 crs, BSNL Rs 40551 crs, NMDC Rs 7198 crs, MMTC Rs 5952 crs, Neyveli Lignite Rs 4749 crs, Kudremukh 1278 crs, Power Finance Rs 694 crs, NTPC Rs 14933 crs, Power grid Rs 1865 crs and SAIL Rs 13750 crs. The total comes to Rs 95,630 crs.
CNI Research feels that there is a fair chance that Government may first strip the cash balance lying in the books of these PSU’s before disinvestment. In 2008-09 the dividend income was much lower at Rs 39,736 crs as against budgeted figure of Rs 43204 crs but for 2009-10 the Government has estimated that Rs 49,750 crs will be given out as dividend hinting at cash stripping ahead of disinvestment.
CNI study also cautions that if this kind of supply is introduced in the market without there being any appetite and depth, there are fair chances that market may collapse. “Investors will have to take their call on this futuristic event though we suggest monitoring the things to happen and the pace at which it happens”, adds Mr. Ostwal..
Apart from the PSU disinvestment of Rs 1,18,561 crs, the 120 private companies where the promoters are holding in excess of 75% is Rs 25,019 crs. In fact, a few companies have already started diluting their stakes by ADR, GDR, QIP, open market operations and other placement modes and hence we see no threat for the market. The QIP list which is far in excess of 10 bn USD clearly suggest that market will easily absorb this kind of supply especially when these are very sound companies.
Having concluded that private sector is not a big threat the issue really again boils down to disinvestment which is already been noticed and factored in by the market. The liquidity will improve substantially.
CNI Research feels that here is a great opportunity for global investors to test Indian shores through primary route and secondary market. Since majority of the paper is very high quality e g NMDC, BSNL, NHPC, Hindustan Copper, SAIL, MMTC, IOC, Neyveli Lignite, Power Finance, Power Grid and NTPC, we do not see any problem for selling these companies’ shares to global investors. These companies alone could rake in over Rs 1 lac crores leaving just a small amount of Rs 20,000 odd crs which can be easily digested in any market place, even in the current scenario.
About CNI
CNI Research Limited is a BSE Listed, leading Indian Research Company analysing and providing Data, Research Reports and Financial Information about Companies that are into the Small and Medium Cap category. CNI today has more than 40,000 subscribers from the retail Investors who rely on CNI for authentic and reliable information on Capital Markets to make their investment decisions. This information is provided to them online through their Financial Portal www.chamatkar.com .
CNI Research operates in the highly fragmented SME segment where information is hard to come by. Most of the research in India is done on large companies while there exists, practically no reliable information on smaller companies. CNI established in 2000 has successfully stepped into this void and established itself as a serious research house that sources hard to find data from these enterprises and does in-house research to come up with reports that are reliable and often predict the future happenings.
For more information, please contact:
Sunil Kumar Singh
Finesse PR
Telephone: +91 11 43056200(30 Lines) Fax: + 91 11 43056202
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