Disinvestment ETF to hit market next week

The much-awaited disinvestment exchange-traded fund, which is expected to help the government raise about Rs 3,000 crore (Rs 30 billion), will open for subscription next week, three people with knowledge of the development have said.

Road shows for marketing of the new fund offer for the ETF will start on Friday.

The government has appointed Goldman Sachs as the fund manager and ICICI Securities as advisor for the so-called Central Public Sector Enterprises ETF.

The CPSE ETF will initially be a basket of 10 government-owned stocks. Gas explorer ONGC will have the highest weight of 27.6 per cent, followed by another energy company GAIL (India).

Engineers India will have the least weight. Nearly 60 per cent of the index will be comprised of energy companies.

The ETF will track the performance of the CPSE Index, which has been developed by India Index Services & Products, an arm of the National Stock Exchange.

The CPSE Index, with a base date of January 2009, will provide real time rates from March 18.

According to data provided by the NSE, the index has delivered 3.86 per cent returns so far this year and has a one-year return of minus six per cent.

The benchmark Sensex is up 2.85 per cent so far in 2014 and has risen nearly 12.5

per cent in the past one year.

The CPSE ETF will be a first-of-its-kind in the Indian market and will help the government in future disinvestment. The government is also likely to offer 5 per cent upfront discount and loyalty incentive to retail investors investing in the NFO.

The domestic ETF market has seen healthy growth in the last few years with assets under management increasing from Rs 1,396 crore in March 2009 to Rs 11,807 crore (Rs 118.07 bilion) in September 2013.

Stretched to meet the disinvestment target of Rs 40,000 crore (Rs 400 billion), the government has tried innovative ways to fill the gap.

Recently, the government sold 4.66 per cent holding in BHEL to LIC through a secondary market bulk deal to raise nearly Rs 1,900 crore (Rs 19 billion).

It also asked cash-rich Coal India to give a hefty special dividend through which it pocketed about Rs 16,500 crore (Rs 165 billion). It also asked NHPC to do a share buyback, where the government tendered part of its holding.

The government is also likely to sell its 10 per cent stake in Indian Oil Corporation for about Rs 5,000 crore (Rs 50 billion) next week. ONGC and Oil India are expected to pick up 5 per cent each in IOC from the government.