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What is disinvestment in divestitures?
Disinvestments take place when the companies want to liquidate their stocks. If the companies want to change the rules by pressurizing the government or an industry, they will go for disinvestments, which also results in funds reduction.
Procedure
The procedure for a disinvestment in divestiture is as follows −
Principle consent by administrative ministry, Centre public sector enterprise (CPSE).
Proposal to disinvest by the Cabinet Committee on Economic Affairs (CCEA) approval.
With an approval of the finance minister, the Constitution of inter-ministerial group to guide the disinvestment process.
Inter-ministerial group appoints the advisers (merchant bankers, legal advisers, book running lead managers).
Book running lead managers will give a presentation on valuation to a high level committee.
By taking recommendations of bank lead managers, the high level committee recommends floor price to alternative mechanisms.
Recommended floor price, disinvestment method, discount price for investors, employees etc., gets approval from alternative mechanisms.
Centre public sector enterprise (CPSEs) disinvestment methods
Initial public offering (IPO) − Offers shares of unlisted CPSE/government to the public.
Further public offering (FPO) − Offers shares of listed CPSE/government to the public.
Offer for sale (OFS) − Stock exchange mechanism is used by promoters.
Strategic sale − Substantial part of government shares are for sale.
Institutional placement program (IPP) − Only the institutions will participate in offering.
CPSE Exchange traded fund (ETF) − Government stake in various sectors are for sale through single offering.
Types of disinvestments methods (in India)
Minor disinvestment − government retains majority of stake and ensures management control in Public Sector Units. Retains more than 51% of shares to retains management control
Majority disinvestment − majority disinvestment is also known as strategic disinvestment in which the government sells majority of shares and keeps minority of shares in Public sector units.
Complete disinvestment − complete disinvestment is nothing by privatization of public sector units. That means it sells its complete share or sells 100% of shares and transfers its control to the buyer.
Disinvest money used for
Consumption and demand increases.
Government debt is minimized.
Finances countries large scale infrastructure projects.
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