With the “successful” completion of the 5.8 percent stake sale in Steel Authority of India Limited (SAIL), the government has added to its treasury Rs 24,000 crore which it claims will help reduce the country’s fiscal deficit significantly.

The offer for sale (OFS) process, which reduced the government’s stake in SAIL to 80 percent, was a one-day affair which took place on Friday. Apart from the meager involvement of FIIs and domestic institutions (mopping up 20 percent each), banks and retail investors (acquiring 10 percent each), state-owned institutions including the LIC and SBI were present with their fat cash bags too. While LIC pitched in a generous Rs 600 crore, SBI settled for Rs 100 crore investment.

Yes, the finance minister P Chidambaram did score brownie points by achieving the disinvestment target (although Rs 222 short to be precise) but did the minister do so by shortchanging stakes in the PSUs have set the grapevine abuzz.

Experts have been skeptical about the government hurrying into various divestment decisions and ultimately having to turn towards other PSUs to save its fall from grace. Proving their loyalties time and again, LIC and SBI have always come to rescue the government with their more-than-generous investments.   

“I would give the entire credit to state-owned PSUs like LIC, SBI and PNB because of whom the government was able to mop up Rs 24, 000 cores. If not for them, the government would be struggling to achieve this target owing to the risk-averse attitude of foreign institutional investors and other investors,” Bhavesh Chauhan, senior research analyst, Metal & Mining, Oil & Gas, Angel Broking told Governance Now.

On being asked if the government had timed the dilution decision well Chauhan said that the government’s inability to dilute stake in SAIL for the last three years due to poor market conditions, especially the steel sector, only increased its desperation. “They have been trying their luck for a long time and when they got the slightest opportunity, they went ahead with the (stake) sale,” he said.

Another analyst, DK Aggarwal, chairman and managing director of SMC Global Securities said that the government “managed” to achieve its divestment target for this fiscal but the road ahead would be a rocky ride. “Even though the government has fulfilled its disinvestment target of Rs 24, 000 crore for the current fiscal, it would be tough to meet its ambitious target of Rs 54, 000 crore for FY14. This is because it has to rely on LIC and SBI for being able to sell a significant chunk of its stakes in these PSUs. It failed to sell an additional 5% stake in NALCO, which was over and above the OFS and similarly the SAIL stake sale failed to attract investors as its share price plunged,” Aggarwal told Governance Now.

Following the stake sale announcement in January, SAIL’s stock plunged by 32 percent and this, some experts say, needs to be looked into suggesting that the government could keep the divestment decision under wraps and announce its decision just one-two days in advance (as per Sebi’s norms) to catch investors by surprise and raise more funds.

“Announcing a stake sale so many weeks or months in advance defeats the purpose of an OFS under which the government has the potential to earn huge revenues. It provides scope to speculators to manipulate the prices which leaves the government with smaller earnings,” a senior business journalist Alam Srinivas told Governance Now.

However, both Chauhan and Aggarwal disagree with the idea saying that such a move would only add pressure on institutions like the LIC and SBI who would ultimately have to bail the government out at higher prices. “Investors have become very particular about the valuation of companies and so they would not invest if they perceived the share prices to be too high. This would mean that other state-owned institutions would have to put in more money for the stake sale to come through,” Aggarwal said.

For the time being the government can celebrate but after that it will have a little thinking-through to do- was this the best way to go about it keeping in mind the long-term implications.