Disinvestment through FPOs and not IPOs

The Planning Commission deputy chairman recently underlined the urgent need for divestment to bridge the resource gap of Rs 1.6 trillion in the Eleventh Five-Year Plan. The gravity of the situation is clear from the fact thatthe government is not divesting any new company but is instead selling its stake in companies already listed on the stock exchanges through FPOs. The FPO or follow on public offer is when a company listed on the exchange comes up with a secondary sale of shares offer. For the government, the advantage of an FPO is that they don't have to go take approvals from the parliament and the line ministry before making an offer as this results in a large lead time. For example, Coal India is expected to take at least 6 months before it can file the prospectus for an IPO with SEBI. The reason is that it will have to take approval from its board of directors, the administrative ministry, the disinvestment department, the Cabinet and only then can it file its prospectus. Even the government gets entangled in its own red tape.