rediff.com: Divestment department favours Maruti sell-off: Reuters

India's Department of Divestment, or DoD, has proposed that the government sell its 50 per cent equity stake in carmaker Maruti Udyog Limited, a Finance Ministry official said on Friday.

The department has said it would be better for the government to exit from the joint venture with Japan's Suzuki Motor Corp as it is a competitive, non-strategic sector, said the official.

It is compulsory for the government to hold a majority stake -- 51 per cent or more -- in state-run firms operating in strategic sectors. But such a condition does not apply to firms in non-strategic areas.

The DoD has said that the share sale should be done immediately because "it is fast losing value on account of Maruti Udyog's depleting market share following the entry of several competitors", the official, who did not want to be identified, said.

The MUL share sale is listed for discussion at a meeting of the Cabinet Committee on Divestment on June 23.

The department has favoured a larger share sale in state-owned telecom firms Mahangar Telephone Nigam Limited, or MTNL, and Videsh Sanchar Nigam Limited, or VSNL, to bring down the government equity in each of them to 26 per cent, the official said.

"But the department has said that share sales in these two firms should not be to strategic investors because both are well-managed and professional companies," the official said.

The DoD has categorically stated that the government "must not give up management control to private or strategic partner and ensure this through a public offer".

The government currently owns 56 per cent in MTNL, while in VSNL its holding is nearly 53 per cent.

After recent lows in mid-May, both MTNL and VSNL shares are on the ascent. MTNL closed trading on Friday at Rs 244.95, up Rs 26.20 from the previous close, while VSNL jumped Rs 126.15 to close at Rs 1,380.25.

The June 23 meeting is also expected to finalise the road map for share sale in at least 22 state-run firms in 2000-01, the official said.

The government has set a target of raising Rs 100 billion through sale of government equity in state-run firms.

When contacted, Minister in charge of Divestment Arun Jaitley declined to say whether the governments would be able to achieve its target of Rs 100 billion.

India's plans to raise money through equity sales in state-run firms has met with limited success in the past. It raised only Rs 183.94 billion between 19991-92 and 1999-2000 against a target of Rs 443 billion.

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