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P. Manoj

The CCD had fixed a foreign equity holding ceiling of 25 per cent while flagging-off the privatisation of SCI in January 2001 through a strategic sale of 51 per cent Government equity.

NEW DELHI, March 11

THE privatisation of Shipping Corporation of India is slowly changing course.

The Government is looking at the possibility of relaxing the 25 per cent cap imposed on foreign equity participation in the deal to increase the number of bidders from the three, who are left in the fray.

The Government's disinvestment managers deliberated on this aspect, while scrutinising the final draft of the transaction documents for the sale of SCI at a meeting of the core group of secretaries on disinvestment held on March 7.

The recommendations of the core group will be put up to the Cabinet Committee on Disinvestment (CCD), which will have to take a final view on the matter.

"The existing cap of 25 per cent on foreign equity participation was decided by the CCD. Any change in this regard will also have to be decided by the CCD," a senior official who participated in the core group meeting, told Business Line.

Given the fact that 100 per cent foreign direct investment (FDI) is allowed in the country's shipping sector, the Cabinet Secretary, who heads the core group, is understood to have first questioned the issue of restricting the foreign holding in SCI privatisation to 25 per cent.

The core group fears that in the event of any of the three remaining bidders (Essar Shipping Ltd, Videocon group and Sterlite group-Varun Shipping Company Ltd combine), winning the SCI deal, it may sell the 51 per cent stake to a foreign entity after the lock-in period and make a neat profit.

"Instead of enabling a domestic private company to improve their balance sheet and make profits out of the SCI deal, why can't the Government maximise its proceeds straightaway," the official questioned.

Of all the three bidders left in the race, only Essar has shipping experience. But Essar's struggling financial position is being highlighted by its corporate rivals.

Essar contests this by arguing that the buoyancy in the freight market and the upswing in the steel sector, would give enough financial muscle to acquire SCI.

In the case of Sterlite, the company has its hands full with interest in other disinvestments deals such as Hindustan Copper Ltd and Nalco. Besides, it has already raised funds to bank-roll Balco and Hindustan Zinc deals in the past.

Doubts have also been expressed in certain quarters whether Videocon's interest in the deal will last till the final price bids are submitted.

The CCD had fixed a foreign equity holding ceiling of 25 per cent while flagging-off the privatisation of SCI in January 2001 through a strategic sale of 51 per cent Government equity.

This implied that out of the 51 per cent stake being put-up for sale, foreign entities could only hold 25 per cent equity. As a result, the foreign bidders had to join hands with an Indian bidder to be eligible for bidding.

But, the problems associated with bidding for SCI on a 25 per cent equity cap had scared away many foreign shipping lines including Malaysia International Shipping Corporation Bhd, Mitsui O.S.K.Lines, Orient Overseas Container Line (OOCL) and Qatar Shipping which had submitted their expressions of interest to the Government initially.

The core group is reported to be of the view that the Government needs to revisit the foreign equity cap to attract more bidders and make the bidding process aggressive.

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