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Govt allows foreign funding for privatisation

India will allow companies to use money raised in foreign markets to buy stakes in state-run firms under the government's privatisation programme and to fund subsequent public offers, a statement said on Monday.

Under current regulations, money raised by issuing American Depositary Receipts, Global Depositary Receipts and Foreign Currency Convertible Bonds cannot be invested in the stock market or in real estate.

That has meant such funds could not be used to buy stakes in state-owned firms under the government's divestment programme.

But to spur more lively bidding for state assets put up for sale and give a further boost to the divestment programme, the government will now permit money raised by selling securities abroad to be used to buy state-run companies.

"The government has decided that ADR/GDR/FCCB proceeds could be used in the first stage acquisition of shares in the divestment process, and also in the mandatory second-stage offer to the public".

It attributed the change of policy to the "strategic importance" of the divestment process.

Second-stage public offer refers to the requirement under Indian takeover law for buyers of 15 per cent or more of a listed company to make an open offer for a further 20 per cent of the outstanding shares.

The government plans to step up its privatisation drive in the months ahead, selling stakes in a metals firm (Nalco), two large oil companies (HPCL, BPCL) and several other state-run firms.

India's faltering privatisation plan got a boost earlier this year when the government sold controlling stakes in Videsh Sanchar Nigam Ltd, an oil marketing company (IBP), India's second largest petrochemical firm (IPCL) and the nation's largest automaker Maruti Udyog Ltd, a joint venture with Japan's Suzuki Motor Corp.

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