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2011-12-27 - 09:56:00 - DJ UPDATE: India Considering New Step To Meet Stake-Sale Target

DJ UPDATE: India Considering New Step To Meet Stake-Sale Target

-- Plans to float company to buy govt stakes in state-run firms - official

-- New company to secure bank loans to fund stake buys - official

-- Move to limit the need to borrow more, keep budget gap in check

-- Friday's bond sale is to adjust previous, Jan 6 issues - official

(Recasts with the official's comments in 1st, 3rd and 4th paragraphs, context and background.)

By Prasanta Sahu and Mukesh Jagota


NEW DELHI (Dow Jones)--India plans to crate a company that will take bank loans and purchase government stakes in state-run firms, a senior finance ministry official said Tuesday, as New Delhi makes desperate efforts to meet its revenue target and limit the requirement of market borrowing to bridge fiscal deficit.

The government had budgeted to raise as much as INR400 billion ($7.6 billion now) by selling parts of its stakes in state-run companies in the current fiscal year. It raised just INR11.5 billion so far, nine months into the fiscal year, as a weak stock market drove valuations down--the benchmark Sensitive Index is down 23%, hurt by muted foreign capital inflows--delaying plans of share sales.

Buying shares through the planned special-purpose company would help the government meet the INR400 billion target, the official told Dow Jones Newswires. "We may even get more than that."

The official, who didn't want to be named, said the proposed company would buy stakes in several state-run companies, including Coal India Ltd. (533278.BY) and Steel Authority of India Ltd. (500113.BY).

New Delhi has been considering several options to raise funds using its stakes, after the weak market damped the prospects of public issues. It had previously asked some cash-rich companies to make buyback offers in which the government too can tender its shares, but that move is caught in inter-ministerial squabbles.

The new initiative underscores the government's frantic efforts to meet its full-year revenue target as tax collections are under pressure amid a slowing economy. Any slippage in revenue target will strengthen the need to borrow more to fund a rising subsidy bill, made worse by a steady weakening of the Indian rupee.

India aims to limit is budget deficit to 4.6% of its gross domestic product this fiscal year, a target that increasingly looks set to be missed.

The government has already said it will borrow INR528 billion more than its budgeted full-year aim of INR4.17 trillion.

The bond market, groaning under massive supply of government papers, eased a tad after the official clarified on an unscheduled INR150 billion bond auction Friday, that sparked worries of additional government borrowings.

Bond prices rose after the official said the unscheduled sale is to adjust for a INR40 billion earlier-canceled bond auction and for advancing a INR110 billion bond sale due Jan. 6.

The 8.79% 2021 bond rose to INR101.94 from INR101.75 before the news.

-By Prasanta Sahu & Mukesh Jagota; Dow Jones Newswires; 91-11-43563301

(END) Dow Jones Newswires

December 27, 2011 04:56 ET (09:56 GMT)

Copyright (c) 2011 Dow Jones & Company, Inc.

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