Centre eyes Rs 12,000 crore through Bharat 22 ETF

The Centre is looking to raise as much as Rs 12,000 crore from retail investors this Diwali by divesting holdings in 22 companies through the Bharat 22 exchange traded funds (ETFs). 

According to sources, the new fund offer (NFO) could hit the market in the last week of October or early November. It will have a core size of Rs 5,000 crore to Rs 6,000 crore, with an option to retain oversubscription of the same amount. 

Sources said the government was giving final touches to the Bharat 22 ETF, which has already obtained the market regulator Securities and Exchange Board of India’s (Sebi’s) approval. 

“The ETF will be launched immediately after the GIC Re IPO process is complete to avoid bunching up. The market conditions are once again improving and domestic investor sentiment continues to remain positive. The Centre would want to cash in on that,” said a person with direct knowledge of the development.

GIC Re’s Rs 11,400-crore initial public offering (IPO) hits the market on Wednesday. The success of GIC Re and Bharat 22 ETF could add over Rs 20,000 crore to the government’s disinvestment kitty. 

The ETF, which is treated like a mutual fund (MF) equity scheme, will be launched by ICICI Prudential MF, one of the country’s largest fund houses. The ETF is being launched at a time when retail investors are aggressively investing in equity MF schemes. An average Rs 14,500 crore a month has got invested in equity schemes this year. The ETF will also eye big investment from the retirement fund body Employees’ Provident Fund Organisation (EPFO), whose equity investment limit has been raised. ETFs as an investment vehicle, too, have gained traction with assets doubling in the past one year.

In the past, the government has successfully used the ETF route to raise capital. The central public sector enterprise (CPSE) ETF was first launched in March 2014 to raise Rs 3,000 crore. Last fiscal year, the Centre sold more units of the CPSE ETF to raise another Rs 8,500 crore in two tranches. All three tranches of the CPSE ETF were oversubscribed. 

Note: Data as on end of previous quarter Source: Regulatory filings
Unlike the CPSE ETF, which was focused mainly on the energy sector, Bharat-22 is well-diversified. It comprises 16 central public sector enterprises (CPSEs), three state-owned banks and three stocks in which the government holds stake through Specified Undertaking of the Unit Trust of India (Suuti). To ensure diversification, the ETF has capped sector weight at 20 per cent and individual stock weight at 15 per cent. The top three holdings of the ETF will include Larsen & Tourbo (L&T), ITC and State Bank of India (SBI). 

Depending on the final size of the ETF, the centre will sell its holding in the underlying 22 stocks to investors of the ETF at price slightly below the prevailing market rate. Retail investors, those with investment ticket size of less than '2 lakh, applying in the IPO could be offered a discount of up to five per cent.

Sources said the government is eyeing a total of Rs 25,000 crore through the Bharat-22 ETF. “It could launch one or two more tranches in the last quarter of the year. Success of the first tranche is critical,” said an investment banker.

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