The government might divest part of its stake in Axis Bank, ITC and Larsen & Toubro, held through Specified Undertaking of the Unit Trust of India (SUUTI), through the new exchange-traded fund it plans to launch.
The new central public sector enterprise exchange-traded fund (CPSE ETF) could also contain bank or insurance stocks in its basket, Business Standard has learnt.
On Tuesday, the finance ministry invited bids for asset management companies to create and launch the government’s second CPSE ETF. Though the size and composition of the basket will be decided after the appointment of an asset management company, the clincher lies in the formal Request for Proposal (RfP). It says: “The government proposes to create and launch a new ETF, in addition to the existing CPSE ETF, comprising stocks of listed CPSEs and GoI (Government of India) stake in other corporate entities.”
Senior government sources confirmed the latter reference could mean SUUTI. “SUUTI’s stake in Axis, L&T and ITC is being considered for the new ETF basket. We are yet to decide on the composition,” said an official.
The person said when the earlier CPSE ETF, launched in March 2014, was being planned, there were discussions to include SUUTI stakes in the basket, which did not materialise.
What makes it easier for the Centre to include SUUTI stakes this time is that divestment of all entities, including SUUTI, is being handled by the department of investment and public asset management.
The earlier occasion, while the ETF was being set up by the erstwhile disinvestment department, SUUTI was under the department of economic affairs.
“We are looking at all options for the ETF composition. There will be discussion with the department of financial services, to see if state-owned banks and insurance stocks can be included,” the official said.
“The proposed new ETF will serve as an additional mechanism for the government to monetise its shareholdings in those CPSEs that eventually form part of the ETF basket,” goes the RfP.
The proposed ETF could be a New Fund Offer, followed by a further fund offer or tap mechanism or tranche or other additional offering. “Government may provide appropriate discount for different investors in the form of a suitable mix of upfront and back-end loyalty discount,” the advertisement said.
An ETF is a security that tracks an index, a commodity or a basket of assets like an index fund but trades like a stock on an exchange. The biggest advantage is that it provides diversification to investors and is cheaper than investing in a fund. The brokerage fees are the same as trading in an individual stock. An open-ended ETF has no upper investment limit but a closed one has.
The earlier ETF raised around Rs 4,000 crore for the government. However, as it was a closed-end fund, with a limit of Rs 3,000 crore, the remaining Rs 1,000 crore was returned to investors.
The constituents of the fund are Coal India, Oil and Natural Gas Corporation (ONGC), GAIL, Rural Electrification Corp, Power Finance Corp, Container Corp of India, Indian Oil, Oil India, Bharat Electronics and Engineers India. Of these, the largest are ONGC, with a 23.62 per cent weight, Coal India (17.18 per cent), and GAIL (16.81 per cent). The other companies’ weights range between one per cent and 8.5 per cent.