Don’t see any correlation between divestment and GAAR: Divestment secy

The financial year ended March 2012, was not a good year for the government's divestment programme. It missed its target of Rs 40,000 cr. In the ONGC share sale, LIC had to step in to rescue the government after investors showed little appetite for the oil major's shares that had been priced at a premium to the market price.

The new GAAR proposal has left foreign investors cautious and it remains to be seen if they will go for other divestment sales this fiscal.

NDTV Profit spoke with Divestment Secretary Mohammed Haleem Khan about these issues and how he sees the divestment roadmap for fiscal year 2012-13.

The impact of GAAR (general anti-avoidance rules) on what you would be able to raise via divestment proceed and what you wouldn’t be able to raise this year, putting this thing together, the target that you have set forth and what is called as retrograde steps in terms of FII taxation, what is the link here?

I don’t think GAAR has anything directly to do with the divestment target. If it does, then it has to do with FII (foreign institutional investor) inflows and FII outflows. It is the capital market that will be impacted and indirectly if the capital market is not in good health, then disinvestment is not an easy thing to do. That is a very remote correlation and I don’t think it is a good approach towards GAAR.

You are hoping to sell a lot of government stock to investors. A lot of them will be foreign investors, these rules disincentive foreign investors from coming in. 

It’s your way of looking at it, I don’t go into the layers of what will impact the capital market, but I understand only one thing; if the capital market is in good condition, then disinvestment is easy to do and if capital market is not in good condition, then disinvestment becomes difficult, that is my correlation. If you want to go deep into the layers then that is your choice.

The issue takes more importance after what happen with ONGC in March?

What happened with ONGC? It was subscribed 98% and was a great result. I don’t know what you are expecting.

One was not expecting LIC to buy, one was expecting others to pitch in as well. It’s like LIC alone saw the value in it and others didn’t. With GAAR and others rules in now, is it going to be tough. Obviously, it’s not in your hand as the finance ministry frames the rules, but your job gets harder to raise Rs30 thousand crore that you have set out in fiscal 2013?

I don’t see any direct correlation between (these). As I have said, anything that impacts the health of the capital market certainly makes things difficult for everybody and whoever raises capital from the market and disinvestment also in the process gets affected. And beyond that I don’t see any direct relationship. And I don’t think anybody anywhere is keen to impact the FII inflows and outflow. If you want to avoid taxes and if you feel avoiding the taxes is not easy so disinvestment will not be easy, I really don’t think that there is any correlation. Everybody has to pay taxes as per the rules of the country. 

Avoidance is other thing, but I am sure there are other issues as well which you are very well aware and perhaps you don’t want to talk about them, I mean changes to tax laws with retrospective effect, it’s a mix of all things whether one wants to put in the money in the government companies or not, what’s the guarantee that rules won’t change once you buy into that company?

We have to look into things with larger and positive perspective. Nobody in this country says that FII and FDI are less than welcome, everybody is working out ways and means to facilitate that. But at the same time, (the) country is also committed that tax avoidance and black money generation is curbed to the extent that is feasible and practically possible. Now, if somebody is trying to paint a picture that one can be achieved or the other can be achieved then that’s up to the individual but I don’t think that the two are at the cost of each other.

Let’s move on to the issue that the promoters have to reduce their stake in both public and private companies, Sebi (Securities and Exchange Board of India) has said this can be done till August 2013 and not beyond that. Has some of this been factored in your divestment procedure as well?

I think it is going to facilitate our work because now the government-listed companies are going to face the time constraints so. To that extent, my work will be facilitated so it is a good thing for me.

In your calculation what are you factoring in because of these kinds of moves companies having to reduce their stake to certain level?

Let me put it this way: you have to read two things together. Sebi has said in its guideline with regards to free float within a particular time line, but prior to that they have also facilitated and stream lined the processes. They introduced two new options – one is the offer for sale by option and the other is IPP. Now, both these thing make life simpler for all those companies who wants to enhance their free float because it is less time-consuming and also less on documentation and other processes so companies should find it easier to comply with Sebi guidelines.

Any update on Hindustan Zinc and Balco?

The two companies are in some sort of litigation. The promoter has written some proposal to the government, the department of mines is examining the proposal and if the proposal looks different, then those issues which are under litigation, then things will get concretized soon. But if the issues are the same, then it is very difficult to cut the time.