Mumbai: The government is divesting stake in National Aluminium Company (Nalco) and Neyveli Lignite Corporation (NLC) despite warnings by its Left allies. The cabinet committee on economic affairs (CCEA) on Thursday cleared the proposal for sale of 10-per cent equity in both Nalco and NLC.

The disinvestment, planned through the public offer route, would dilute government holding in Nalco to 77.15 per cent from the current 87.15 per cent. In NLC, the government would hold 83.56 per cent post sale against the current 93.56 per cent.

"The cabinet committee on economic affairs (CCEA) cleared two proposals to sell small portion of government equity in non-navratnas. It has been decided to sell 10 per cent stake in NALCO and Neyveli Lignite Corporation (NLC)," said finance minister P Chidambaram.

"We are not touching the navratna companies and the disinvestment in a few non-navratnas is a continuation of the earlier decision," he said, adding it was in line with the consensus reached with the Left allies in November last year.

The issue would take the book building process and the price would be decided in consultation with the lead managers, Chidambaram said.

Based on the current price, sale of 10 per cent in Nalco would fetch the government about Rs1,400 crore while 10 per cent equity sale in NLC would bring another Rs1,100 crore.

Chidambaram said the funds raised through the sale would go to the National Investment Fund, which would be managed by LIC, SBI and UTI. Of the sale proceeds, 75 per cent would be used in social sector schemes and the balance in reviving sick public sector units, he added.

The shares of NALCO, currently ruling at around Rs250, would be split before the offer to ensure greater participation of retail investors, he added. The department of disinvestment would decide on the split ratio in consultations with the ministry of mines and the department of public enterprises.

The disinvestment department has also been authorised to take a decision on the issue of bonus shares in consultations with department of expenditure, DPE and the ministry of mines.

The government had divested five per cent in power major NTPC in November 2004. It is also due to sell five per cent equity in Power Finance Corporation (PFC) and 15 per cent in National Mineral Development Corporation (NMDC). The government has already appointed merchant bankers for NMDC and PFC stake sale which is expected to fetch another Rs3,500 crore.

Following the news, the Nalco scrip was up 6.85 per cent at Rs239.60 on the Bombay stock exchange (BSE) while a total of 1,971,697 shares changed hands. Neyveli Lignite was up 15.89 per cent at Rs66 with 3,426,179 shares changing hands.

NALCO, India 's leading producer and exporter of alumina and aluminium, has reported a 40 per cent leap in profit after tax at Rs608.02 crore for the quarter ended March 31 compared to Rs434.24 crore in the corresponding period of previous fiscal. The company has closed the financial year 2005-06 with the highest-ever net profit of Rs1,564.65 crore, recording an increase of 27 per cent over the previous year's figure of Rs1234.84 crore.

NLC, ranked 56th among India's top 500 companies by Dun & Bradstreet Information Services, has been earning profit for more than two decades. NLC reported profits above Rs1,000 crore for the past two years. NLC has also projects worth Rs14,000 crore on the anvil nation-wide.