In a move to strengthen the PSUs, government proposes to plough back funds raised through disinvestment proceeds into the state-owned firms.

The Department of Disinvestment (DoD) has proposed to create special purpose funds out of the disinvestment proceeds to enable the public sector units (PSUs) buy strategic assets abroad and finance their expansion through rights issues.

Secretaries in the ministries of finance, disinvestment, public enterprises, petroleum and natural gas, are likely to discuss the proposal next month, sources said.

As per the proposal, there would be three specific funds to be created out of the disinvestment proceeds.

The government has set a disinvestment target of Rs 30,000 crore for the current fiscal. In 2011-12, the proceeds were dismally low at Rs 14,000 crore against the target of Rs 40,000 crore.

Among the three funds, the first will help the PSUs come out with rights issue. Since the government holds an overwhelming majority in the listed PSUs, these entities are not able to meet their capital requirements through the rights issues unless the government agrees to subscribe to the floats.

The case in point is the long-pending rights issue of the State Bank of India.

The second fund, being proposed, would help the PSUs in strategic areas like natural gas, petroleum and iron ore, scout for assets abroad.

Notwithstanding these proposals, the market for the present, is not favourable for the fresh or the follow-on public issues.

Indian firms including those in the private sector could raise only Rs 2,375 crore through rights issue in 2011-12 -- lowest in eight years -- because of dismal market conditions, according to a Prime Database report.

The study said it was a plunge of 75 percent, compared to Rs 9,594 crore mopped-up in the 2010-11 fiscal. 
PTI