The disinvestment commission chief suggested that the government should vest its entire shareholding in the trust, which would in turn divest them at the right time and price to banks, financial institutions or retail market. The government will receive proceeds from the sale as and when they are executed.

He said this would enable the government to maximise the return on its investment. For the purpose of disinvestment, the state-run units have been classified into four categories: those that should remain 100 per cent with the government (nuclear plants), blue-chipcompanies, those that require an infusion of professional management, and those that should be closed down.

The chairman pointed out that there were about 100 companies which required better corporate governance. For these companies, there should be strategic sale of shares through global competitive bidding, where control will pass into private hands. Agreeing that some of this could be lapped up by multinational companies, he belied fears stating that the country had little to fear from foreign investment.

Securities Trading Corporation of India chairman Dipankar Basu pointed out that the quality of the inflow would be better than even foreign direct investment (FDI), as it would come in one shot and not over the gestation period of the project. Also the money will flow straight into government hands unlike FDI.

Ramakrishna classified the blue-chip companies into two categories - those in which the government held 70 per cent of the equity and those in which it held less than 70 per cent. Stating thatthe government must start with the latter category, he said the trust needed to sell only a small percentage to reduce them to non-public sector companies.

Professional management could then be appointed in these companies, and when the market price of the share picks up, thanks to both, more efficient management and the removal of the public sector tag, more equity could be offloaded at a higher price, allowing the trust and through it the government to book higher profits. According to Ramakrishna, the first installment of shares should be divested at a discount of 10-15 per cent.

This, Ramakrishna said was necessitated by the fact that market sentiment towards public sector stock was negative. Also, this would enable the market to price the shares more accurately. Once the share price picks up, this could be followed by a retail public offer, at a small discount to the prevailing market price. At this stage the institutional investors who bought share in first installment could also offload to theretail investor and book profits.

Replying to a question, Ramakrishna clarified that since the trust and, not the government, held the shares, the former would have voting rights and would appoint its nominees on the board of directors. Ramakrishna said the government could start by transferring shares of four or five companies to the trust, seeing the results and then divest more.

Stating that the real objective of disinvestment was to improve corporate governance of the state-run units, Ramakrishna said the entry of new shareholders would enforce maximisation of shareholder value and thereby make the state-run units more efficient.

Also, eliminating government interference, so far a major deterrent to the proper functioning of state-run units will go a long way in enabling the management to take decisions in the best commercial interests of the company. He said a whole new class of such professionally run companies could be created.

Pointing out the most important contribution of the trust, Basusaid that it would act as a portfolio manager for the government, and at the same time by distancing the owner from the company provide autonomy to the new management.

Lauding the concept, JM Financial chairman and CII's financial services sub-committee chairman Nimesh Kampani said that the market did have the capacity to absorb stock of good public companies, but warned that in the event of sale, the trust must appoint only one lead manager.

Speaking at the seminar, UTI chairman PS Subramanyam said not all state-run units had worked towards enhancing shareholders' value - in this case governments and the taxpayers. The money realised from the sale would help the government to better realise its social objectives.