Centre counts on ETF for Rs 6,000-cr disinvestment

The government plans to launch a second tranche of the CPSE ETF to raise Rs 6,000 crore as part of its divestment programme. The first tranche, to raise Rs 3,000 crore, was launched in 2013-14. CPSE stands for central public sector enterprises, and ETF for exchange-traded fund. CPSE ETF is a basket of 10 public sector undertakings where the government had sold shares in small quantities during the launch. An ETF, or exchange-traded fund, is a marketable security that tracks a basket of assets such as stocks. Unlike mutual funds, it trades like a stock.

According to sources, the core size of the second tranche will be Rs 4,500 crore, with a greenshoe or over-allotment option of another Rs 1,500 crore. If the government mops up Rs 6,000 crore, it will be its biggest divestment for this financial year, excluding buybacks. The offer will go live next week.

The Centre will have to sell between 0.6 and 1.5 per cent each in the 10 underlying stocks that form the CPSE ETF, similar to what it did in the first tranche. ONGC or Oil and Natural Gas Corporation will weigh the most in the index, followed by Coal India and Indian Oil, making the ETF an energy-focused gauge.

Sources said, in order to ensure smooth sailing for the second tranche, the government has sought out participation from pension funds and insurance companies. 

“Given uncertain market conditions, raising Rs 6,000 crore could be a challenge. Hence, the Centre has approached pension fund managers and domestic insurance companies to participate in the issue,” said a source.

This would be the first major divestment where pension funds would participate. Until 2015, Employees' Provident Fund Organisation or EPFO was not allowed to participate in securities markets. Last year, government permitted EPFO to invest up to five per cent of its assets in equity, mainly through the ETF route. 

The government is also counting on retail (small) investors, who will be given a discount of five per cent to the market rate.

CPSE ETF has yielded returns of 25 per cent in the past year, on the rally in energy stocks. Analysts say given the positive outlook for oil and gas companies, amid an increase in global oil prices, the ETF could see good participation.

Oil and gas companies account for nearly half of the weight on the CPSE ETF, with ONGC alone taking up 26 per cent on the index. 

“Besides good returns in the past year, the CPSE ETF has also fared well in terms of dividend payouts. This makes the ETF an attractive proposition as market returns are expected to plateau in the near term,” said a fund manager.

According to the draft prospectus filed by Reliance Mutual Fund with the regulator, 25 per cent of the second tranche would be for anchor investors; small investors will be able to make bids of up to Rs 2 lakh, and people with high net worth can go even higher. 

The divestment corpus for 2016-17 will climb to Rs 27,000 crore if CPSE ETF sails through successfully. While the government planned to raise Rs 56,500 crore through divestments during 2016-17, it has managed only Rs 20,903 crore so far, government data show.

In 2014, Goldman Sachs Asset Management Company took over the fund as manager. Now, Reliance Mutual Fund oversees it.

The government is also looking to launch one more CPSE ETF, with different underlying shares. This ETF is being managed by ICICI Prudential Mutual Fund and is expected to be launched next financial year.


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