Bharat 22 ETF: Bharat 22 to buy Rs 2,500 crore worth of shares from market

Mumbai: Bharat 22 ETF is expected to buy shares worth Rs 2,500-3,000 crore from the open market to maintain government’s stake at or over 52 per cent in the state-run companies that are part of the exchange-traded fund, after its follow-on offer that closed on Thursday.

The fund’s manager, ICICI Prudential Mutual Fund, would buy the shares from the open market to meet the government’s requirement, while keeping the weight of its components at the current level, sources said.

The government offers part of its shares in 19 state-run and three non-state companies through the ETF under its disinvestment programme. The follow-on offer of Rs 3,500 crore was subscribed more than 14 times, with the issuer getting 1.25 lakh applications worth Rs 50,000 crore. It has decided to keep Rs 13,000 crore of this, or Rs 9,500 crore more than the initial target.

Based on the composition of the fund, this would reduce the government’s stake in Engineers India, REC and Nalco below 52 per cent, which it doesn’t want to. Also, it has decided against reducing stake in ITC, one of the three non-state companies. That means, the fund manager will have to purchase shares of these four companies from the market to maintain the weight of the ETF components.

“Gol (Government of India) shall disinvest the shares of central public sector enterprises and public sector banks forming part of S&P BSE Bharat 22 Index (the underlying index) through this additional offering to the extent the shareholding of the GoI post-disinvestment is maintained at or above 52 per cent of the paid-up share capital of those CPSEs and PSBs, and/or subject to any other limits/conditions specified by the GoI,” ICICI Prudential said in a notice put up on its website.

Since the fund is buying shares at market price to maintain the weight, the discount offered to investors on the ETF units will come down to 3.9 per cent from the 5 per cent offered earlier.

As per sources, this purchase will cost Rs 2,500-3,000 crore and will be done over three sessions starting Monday. “There is enough supply and liquidity in these with institutional investors,” said a dealer at a domestic brokerage house.

However, the government’s decision to use the ETF on a regular basis to raise funds hasn’t gone down well with some fund managers. “On-tap Bharat ETF has only collapsed the value of PSUs, as there is permanent overhang of government selling,” said Anand Radhakrishnan, chief investment officer at Franklin Templeton Investments India. “Indiscriminate selling is no disinvestment; time to rethink.”