Another tranche of ETF soon, to raise Rs 8,000 crore

It had raised Rs 8,325 crore in the first FFO of Bharat 22 in June 2018.

With exchange traded fund (ETF) proving to be an effective disinvestment tool even under not-so-favourable market conditions, the Centre has decided to come out with another tranche (second further fund offer or FFO) of Bharat-22 ETF this fiscal to raise at least Rs 8,000 crore.

It had raised Rs 8,325 crore in the first FFO of Bharat 22 in June 2018. In the maiden offer of the diversified ETF (which invests in 22 stocks including CPSEs, public sector banks and some private blue chip companies), the Centre had raised Rs 14,500 crore in FY18.

The composition of the ETF remained unchanged since its launch. Another ETF being run is the CPSE ETF that consists of eleven state-run firms.

“Some anchor investors have already expressed interest in the forthcoming Bharat-22 ETF issue. We expect it to go through smoothly,” a senior official told FE.

ETFs, which have contributed 74% of the (Rs 34,142 crore disinvestment revenue raised so far this year, would play a major role in achieving the disinvestment target (Rs 80,000 crore) this year.
In the biggest divestment transaction via ETFs, the Centre mopped up (Rs 17,000 crore in November 2018 as against the CPSE ETF’s FFO-3 base offer of (Rs 8,000 crore. The issue had got subscribed 3.4 times of the base offer size despite volatility in the stock market.

Investors have given thumbs-up to the ETF issues in the past as well. The Bharat 22 ETF FFO1 in June 2018 got subscribed 2.3 times of the base offer while the first tranche of Bharat 22 ETF got subscribed by 4 times in November 2017.

The government reckons that given the volatile market conditions and the low appetite for individual stocks, the ETF route also attracts robust retail investors participation. “ETFs are low hanging fruit and we were spoilt for choice as to whose/how much bids to accept,” another official said.

The government is confident that the FY19 disinvestment revenue target would be met. Among the big deals in the pipeline for this year, the Centre would raise about (Rs 14,000 crore by selling its 52.63% stake in the Rural Electrification Corporation to another state-run peer Power Finance Corporation. It is also expected to mop up additional Rs 12,000 crore via buyback of shares by a clutch of PSUs.