Singh May Set Record in India Asset Sales After Election Victory

May 22 (Bloomberg) -- Indian Prime Minister Manmohan Singh, who began his second term this week, may set a record for selling state assets as he revives efforts that were foiled by his former communist allies, bankers and analysts said.

The new administration could start by resuming share sale plans for NHPC Ltd., India’s largest producer of electricity from water, explorer Oil India Ltd. and fuel retailer Hindustan Petroleum Corp., according to Mumbai-based brokerage Religare Capital Markets Ltd.

Singh may sell $20 billion of state assets in the next five years as he tries to plug a budget shortfall, said Rashesh Shah, chief executive officer of Edelweiss Capital Ltd. After a privatization wave that netted a record $6 billion between 1999 and 2004 to a government led by Singh’s main opponents, sales slumped during his first term as communist allies thwarted plans.

“Sales by this government will be significantly higher than the previous record,” S. Subramanian, head of investment banking at Enam Financial Consultants Ltd. in Mumbai, said in an interview. Mumbai-based Enam has managed share offerings for state-owned companies including Power Grid Corp. of India Ltd., CMC Ltd. and Power Finance Corp.

Singh’s Congress party-led coalition faces a fiscal deficit that’s more than double the government target and an economy growing at the slowest pace since 2003.

The nation will sell stakes in companies as promised by the Congress party’s election manifesto, P. Chidambaram, who was in charge of the finance and home ministries in Singh’s previous administration, said on May 18. Singh, the first premier to win re-election after serving a full term since 1971, doesn’t need the Communists’ support for his new administration after winning the backing of 322 lawmakers in the 545-seat lower house.

‘Right to Own’

“The Indian people have every right to own part of the shares of public sector companies while the government retains majority shareholding,” the election manifesto said. Still, Congress “rejects the policy of blind privatization” followed by the opposition Bharatiya Janata Party and its allies, it said.

Singh, 76, raised 67 billion rupees ($1.41 billion) from selling stakes in NTPC Ltd. and Rural Electrification Corp. of India Ltd. during his first term, according to India’s Department of Disinvestment. Then-finance minister Chidambaram’s plans to sell shares in companies including Bharat Heavy Electricals Ltd., India’s biggest maker of power equipment, and National Aluminium Co. were blocked by the communists in 2006.

The previous Singh administration waived farm loans, raised government employees’ salaries for the first time in 12 years, cut taxes and increased spending on roads, ports and other infrastructure as it sought to revive economic growth and shore up support before the election. That strained state finances as the economic slowdown hurt tax collections.

Strained Finances

India’s fiscal deficit reached 6 percent of gross domestic product in the year ended March 31, surpassing the 2.5 percent government target.

The prospect of a wider budget shortfall prompted Standard & Poor’s to say in February that India’s spending plans were “not sustainable” and the nation’s credit rating may be cut to junk if finances worsen.

“The government will now have the ability to look at disinvestment seriously in the context of the fiscal deficit,” S. Ramesh, chief operating officer of Kotak Mahindra Bank Ltd.’s investment banking unit, said in an interview. “The numbers can be significant.”

Raising 100 billion rupees from share sales and initial public offerings in the financial year that began April 1 would help cut the fiscal deficit by a quarter-point, according to Religare estimates.

NHPC, Oil India

Companies in which the government had planned to reduce its holding through an IPO, only to scrap the proposals, may be first in line for sales, Religare said in a May 12 research note. Such firms include NHPC, which had expected to raise 55 billion rupees, RITES Ltd., and Oil India, the brokerage said.

The nation’s Disinvestment Committee had also previously recommended cutting stakes in Shipping Corp. of India Ltd., National Buildings Construction Corp., Projects & Equipment Corp., Hindustan Shipyard and Electronics Corp. of India, making them likely candidates during Singh’s second term, Religare said.

Delivering on asset sales pledges may reassure foreign investors that Singh is also serious about economic reforms aimed at making India more competitive. Overseas funds bought $3.1 billion of Indian equities so far in May, the most in a month since October 2007, according to Bloomberg data.

“There’s a huge backlog of offers that will get cleared now,” said Ravi Sardana, senior vice president of ICICI Securities Ltd. “It is also a good message for global investors.”