Financial Daily from THE HINDU group of publications
Friday, Feb 08, 2002
Industry & Economy - Industry Associations
A swap deal worth trying?
MUMBAI, Feb. 7
HOW about an offer to swap your tax saving National Saving Certificate or RBI relief bond for equivalent equity shares of HPCL or BPCL at a discounted price?
This could be possible if the Government considers the Indian Merchant Chamber's (IMC) suggestion for reducing the government's domestic debt - estimated at Rs 13,12,527 crore - through PSU disinvestment by adopting a conversion route.
The idea is simple. The Government should offer a part of PSU shares to holders of its debt - public as well as institutions. For example, Life Insurance Corporation India may be allowed to swap part of its holding in government securities for shares in a public sector undertaking which the Government want to sell. Similarly, individuals holding NSC, PPF, RBI relief bonds etc may be given an option to swap them with PSU shares.
According to IMC, this would help the Government reduce its debt-servicing burden and at the same time provide a powerful stimulus to economy and bring back the "feel-good factor.''
Chartered accountant Mr Shailesh Haribhakti, IMC managing committee member and the brain behind the conversion scheme, says the scheme could help revive the capital market. "This is a capital market-driven approach to disinvestment. On the one hand, it would broadbase the disinvestment approach and on the other, help expand market capitalisation of PSUs.''
Explaining the scheme to the Press here, Mr Haribhakti said to avoid valuation controversies, the offer price can be based on the 52-week average. For example, the 52-week average price of GAIL is Rs 50. This will be the base price on which the discount could be given.
What about the risk? "Yes, there is a risk in equity. But shares are issued at a discount and they are liquid unlike the debt instruments", said Mr Haribhakti.
According to IMC, annual interest outgo on account of domestic debt is Rs 1,12,300 crore and represents 48 per cent of the revenue receipts. The scheme could help reduce this substantially.
IMC has submitted the scheme to the Finance Minister.
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