NEW DELHI: The Union cabinet on Thursday endorsed a decision to sell the government's entire stake in loss-making three-wheeler maker Scooters India Limited. The news boosted the company's share price by nearly 5%.
This is the first instance of outright privatization of a state-run firm by the United Progressive Alliance government. The government had until now said that it would try to revive ailing public sector companies, except the ones that were eternally sick.
"It is proposed to revive the company through induction of a strategic partner by offloading the entire government equity of around 95%," Information & Broadcasting Minister Ambika Soni said after the cabinet meeting. "This will help arrest further drain of public money and also ensure economic growth of the company and its employees."
Following the announcement, shares of the firm jumped 4.92% at 38.40 on the Bombay Stock Exchange. Lucknow-based Scooters India manufactures and sells three wheelers under the brand name of Vikram.
Rajkot-based Atul Auto said it was willing to acquire the government's shareholding in firm, while sports utility vehicle and tractor maker Mahindra & Mahindra said it would explore the opportunity.
Institutions own 0.06% stake in Scooters India, corporates 0.45% and the remaining equity is with the public.
Most of the sick state-run companies own large tracts of land at prime locations, which could be worth more than their value as a running company.
Incorporated in 1972, Scooters India sold scooters under the Vijai Super brand in the country and Lambretta in the overseas markets.
It later ventured into three-wheelers with the launch of Vikram. The company stopped two-wheeler manufacture in 1997, but continued with the manufacture and marketing of three-wheelers.
Scooters India has been recording operational losses since 2002-03 and net losses since 2006-07. It was declared sick in March 2009 and referred to the Board for Reconstruction of Public Sector Enterprises (BRPSE).
The company had a net loss of 22.03 crore on a turnover of 129 crore in 2009-10.
The department of disinvestment would carry out the sale of Scooters India. The government would seek the Parliament's approval to identify and induct a strategic partner for the company.
The cabinet also approved extension of salary support and clearing of the company's balance sheet.
"The intention is to transfer the entire government equity to a suitable identified strategic partner through the department of disinvestment," said Soni.
The firm's inherent inefficiencies, low productivity, old technology and ageing workforce did not help the matter either, Soni said, adding that Scooters India was not able to meet salaries and other statutory dues.
The government has sanctioned 15,254 crore in the past three years for revival of 36 sick public sector units.
If the strategic sale of Scooters India is successful, the government could line up more state-run firms for outright disinvestment. It has identified about 20 firms that are terminally sick . HMT Bearings is one of them.
The government has set a disinvestment target of 40,000 crore for the current fiscal.
ET
This is the first instance of outright privatization of a state-run firm by the United Progressive Alliance government. The government had until now said that it would try to revive ailing public sector companies, except the ones that were eternally sick.
"It is proposed to revive the company through induction of a strategic partner by offloading the entire government equity of around 95%," Information & Broadcasting Minister Ambika Soni said after the cabinet meeting. "This will help arrest further drain of public money and also ensure economic growth of the company and its employees."
Following the announcement, shares of the firm jumped 4.92% at 38.40 on the Bombay Stock Exchange. Lucknow-based Scooters India manufactures and sells three wheelers under the brand name of Vikram.
Rajkot-based Atul Auto said it was willing to acquire the government's shareholding in firm, while sports utility vehicle and tractor maker Mahindra & Mahindra said it would explore the opportunity.
Institutions own 0.06% stake in Scooters India, corporates 0.45% and the remaining equity is with the public.
Most of the sick state-run companies own large tracts of land at prime locations, which could be worth more than their value as a running company.
Incorporated in 1972, Scooters India sold scooters under the Vijai Super brand in the country and Lambretta in the overseas markets.
It later ventured into three-wheelers with the launch of Vikram. The company stopped two-wheeler manufacture in 1997, but continued with the manufacture and marketing of three-wheelers.
Scooters India has been recording operational losses since 2002-03 and net losses since 2006-07. It was declared sick in March 2009 and referred to the Board for Reconstruction of Public Sector Enterprises (BRPSE).
The company had a net loss of 22.03 crore on a turnover of 129 crore in 2009-10.
The department of disinvestment would carry out the sale of Scooters India. The government would seek the Parliament's approval to identify and induct a strategic partner for the company.
The cabinet also approved extension of salary support and clearing of the company's balance sheet.
"The intention is to transfer the entire government equity to a suitable identified strategic partner through the department of disinvestment," said Soni.
The firm's inherent inefficiencies, low productivity, old technology and ageing workforce did not help the matter either, Soni said, adding that Scooters India was not able to meet salaries and other statutory dues.
The government has sanctioned 15,254 crore in the past three years for revival of 36 sick public sector units.
If the strategic sale of Scooters India is successful, the government could line up more state-run firms for outright disinvestment. It has identified about 20 firms that are terminally sick . HMT Bearings is one of them.
The government has set a disinvestment target of 40,000 crore for the current fiscal.
ET
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