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Nalco divestment only after Balco strategic sale

G. Rambabu

NEW DELHI, Oct. 29

THE Government has decided to put off its disinvestment in the aluminium major National Aluminium Company Ltd (Nalco), until a strategic partner has been chosen for the other public sector aluminium company on the block -- Bharat Aluminium Company Ltd (B alco).

According to official sources, this is due to apprehensions that if expressions of interest were invited for Nalco, investors may make a beeline for it, totally ignoring its older but less profitable sibling.

Although both are public sector producers of aluminium, Nalco and Balco are quite differently positioned. Nalco was set up in the eighties with modern technology from France, it is already a listed company on the stock exchange, since about 13 per cent o f its shares were sold in the nineties to FIs and retail investors, including employees. Also, due to its superior technology, Nalco is less threatened by down-turns in the custom tariff or commodity price, they said.

``However, it is important to first accomplish the strategic sale of Balco. If Nalco's disinvestment were accepted simultaneously, there would be no interest shown by the prospective investors in Balco. The strategic sale of Balco has to be, therefore, s trategically timed so that it is not affected by Nalco's disinvestment,'' they said.

The sources pointed out that although Balco has been making profits in the last five to six years, the company, set up in 1965 with old Hungarian and Soviet technology, now has obsolete plant and equipment with high energy costs, resulting in only margin al profits. On the other hand, Nalco has the latest technology with lesser manpower, and profits are increasing by the year.

The authorised share capital of Nalco is Rs 1,300 crore and the paid-up capital is Rs 644.31 crore. For Balco, the authorised capital stood at Rs 500 crore and the subscribed capital at Rs 488.85 crore. However, while the total employee strength of Nalco is 6,000 that of Balco 7,000, they said.

``Also, the cost of production of Balco is several times that of Nalco. In terms of operational efficiency, it is absolutely borderline. The operating profit to sales is only 8.2 per cent in the case of Balco as against 38.9 per cent in the case of Nalco . Obviously, it is a much better buy than Balco,'' they said.

The strategic sale of 51 per cent of the Government equity in Balco is likely to be completed by December. After this, the disinvestment of Nalco can go ahead.

``As for the disinvestment strategy, Nalco is to be retained as a core PSU and it has been decided to sell up to 30 per cent of its present holdings to retail and institutional investors, half overseas and half in the domestic market. In effect the disin vestment would be to the tune of 42.85 per cent, with the Government already having divested 12.85 per cent of its equity,'' they said.