With anaemic markets putting paid to big-bang market-led disinvestment plan for the year, the government is reworking its strategy to reach closer to its Budget target of Rs 40,000 crore from the sale of its share in public sector units. A couple of options are on the table, from buyback, cross-holding, selective public offers of only big companies to residual stake in companies with minority government ownership.

Against the earlier plan of taking eight to nine issues to the market this financial year, it now plans to hit the street with only about three major issues by March 2012.

The government is in the process of identifying companies which can give it maximum returns.

The finance ministry is also exploring the possibility of selling stake in companies where it is left with a minority share and selling further equity would not make much difference, such as Hindustan Zinc and Bharat Aluminium Co Ltd (Balco). Buyback of equity by cash-rich public sector undertakings is also being considered actively, as the government devises alternative plans to beat market blues.

The government is facing a challenge in meeting its fiscal deficit target of 4.6 per cent this year. Fiscal deficit for the first five months reached 66.3 per cent of the budgeted estimates for the full year 2011-12. The government has already borrowed Rs 53,000 crore above the budget target from the market. With tepid growth in tax receipts in the first six months, keeping the disinvestment hope alive is also critical to maintaining its stance of all-is-well at the end of the financial year.

Some shortfall on disinvestment is expected. Action on the disinvestment front is being pursued to maximise returns. The focus is on three to four big issues involving a combination of initial public offers (IPOs) and follow-on public offers. Buyback and sale of residual stake in companies with minority government holding can also be explored, a finance ministry official said.

Economic Affairs Secretary R Gopalan had told reporters last month that the government was considering options for disinvestment. There are many options. There can be equity shrinkage. Our aim is to achieve Rs 40,000 crore (disinvestment target). You can buy back equities, you can go for public offers, he had said.

The government has already given its approval for disinvestment in Oil & Natural Gas Corporation (ONGC), Steel Authority of India Ltd (SAIL), Hindustan Copper Ltd, NBCC Ltd and Bharat Heavy Electricals Ltd (BHEL). Of these, only ONGC and SAIL will be big issues, while BHEL, Hindustan Cooper and NBCC are likely to fetch only about Rs 400 crore, Rs 2,000 crore and Rs 50 crore, respectively.

Another official said even in the current market situation a few scrips were looking good and those could be considered for disinvestment, but definitely the government would not undersell its undertakings.

The government is banking upon ONGC as it still looks good with a price of Rs 271.30 for each share. By divesting a five per cent stake in ONGC, the government will roughly get about Rs 11,500 crore at its current market cap. However, SAIL, at Rs 110 a share (down from a 52-week high of Rs 230), would add only a little over Rs 2,200 crore to the government kitty if five per cent stake is offloaded.

Disinvestment in Hindustan Aeronautics Ltd and Rashtriya Ispat Nigam Ltd was also considered for this year, but since these IPOs are expected to fetch between Rs 2,000 crore and Rs 2,500 crore, the government will have to weigh other options.

Hindustan Zinc and Balco are among the prominent companies where the government plans to sell its residual stake. Hindustan Zincs stock, where the government holds 29.53 per cent, has not seen much fall in spite of the market downturn. The government can get richer by about Rs 5,000 crore if its sells 10 per cent. In Balco, the government currently holds 49 per cent.

If still there is some shortfall that can be met through tax collections. Indirect tax collections will reach the target and the loss of Rs 36,000 crore on account of duty cut on petroleum products will be offset. Direct taxes are likely to marginally exceed the target. We will also have some savings as expenditure will be done only on priority items, said one ministry official.

The government had mopped up Rs 22,762 crore from disinvestment proceeds in 2010-11, against a target of Rs 40,000 crore. It had divested stake in six companies Satluj Jal Vidyut Nigam Ltd, Engineers India Ltd, Coal India Ltd, Power Grid Corporation of India Ltd, Manganese Ore India Ltd and Shipping Corporation of India Ltd.