India to raise Rs 20,000 cr by selling stakes in Coal India & a PSU bank to fund stimulus

In case of Coal India, if valuations are not attractive, the company will buy back shares from the government, officials said.

Representational image of a coal mine | Source: Twitter | @coalindiahq

New Delhi: India is considering a plan to raise as much as Rs 20,000 crores ($2.7 billion) by selling stake in the world’s largest coal producer, and a bank to fund a stimulus program aimed at boosting the virus-battered economy, officials with knowledge of the matter said.

The proposal involves a share sale depending on the market sentiment, said the officials, who asked not to be identified, as the discussions are private. In case of Coal India, if valuations are not attractive, the company will buy back shares from the government, they said. Two calls made to the finance ministry spokesman remained unanswered.

The coronavirus pandemic has derailed Prime Minister Narendra Modi’s budget goals. Rapid spread of the disease prompted the government to boost spending on welfare programs and revive the economy struggling from the month long stay-at-home order to check the spread of Covid-19. Modi in February had planned to raise as much as Rs 2.1 lakh crores selling state assets in a bid to keep the budget deficit at 3.5% of gross domestic product.

Despite the economic cost, the spread of infection continues unabated with India surpassing Russia to become the third worst-hit country with more than 740,000 Covid-19 cases, putting further pressure on finances.

An unprecedented freeze in international travel and lower oil prices has upset government plans to sell flag carrier Air India and nation’s second-largest state refiner Bharat Petroleum Corp. Ltd. India’s asset sale goal for the year ending March 31 was more than double the previous year’s target.

Life Insurance Corp. of India bought 51% of IDBI Bank last year, leaving the government with about 47%. The government holds more than 66% in Coal India. It had previously sold a 10% stake in January 2015, mopping up Rs 225.5 lakh crores.

Economists in a Bloomberg survey expect the nation’s fiscal deficit this year to hit 7% of GDP — a level last seen in 1994. The International Monetary Fund sees the country’s public debt rising to 85.7% of GDP next year from around 70% now.

A possible credit rating downgrade is another risk for India, which is heading for its first economic contraction in more than four decades this year. The credit score of Asia’s third-largest economy is only a step away from junk at Fitch Ratings and Moody’s Investors Service, both of which have kept the sovereign on negative watch citing deteriorating fiscal strength. – Bloomberg