Disinvestment financial definition of disinvestment

After disinvestment, AT&T retained its long-distance services, while the operating companies, referred to as the Baby Bells, provided regional services. Whether disinvestment results in the divestiture or the reduction of funding, the primary objective is to maximize the return on investment (ROI) related to capital goods, labor, and infrastructure. Privatization and disinvestment are undertaken with the aim of improving the efficiency of the enterprise.

While most divestment transactions are premeditated, company-initiated efforts, at times this process could be forced upon them as a result of regulatory action. When there is a transfer of ownership, control and management, from the public sector to the private sector, specifically due to the sale of assets, it is called Privatization. When the transfer becomes effective, the government ceases to be the owner of such an undertaking.

Understanding Divestment

This information should not be considered complete, up to date, and is not intended to be used in place of a visit, consultation, or advice of a legal, medical, or any other professional. There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data. The fund manager manages the allocation to equity and debt in a dynamic manner and so the investor does not need to keep track of the asset allocation of the fund and does not have to carry out the rebalancing at his end. Divestment will typically take the form of a spin-off, equity carve-out, or direct sale of assets. These examples are programmatically compiled from various online sources to illustrate current usage of the word ‘disinvest.’ Any opinions expressed in the examples do not represent those of Merriam-Webster or its editors.

• Companies considered to be monopolies may be legally required to disinvest holdings to ensure fair competition.
• Divestment campaigns have also been directed against Saudi Arabia due to allegations of “gender apartheid”.
• Ronald Reagan, who was the President of the United States during the time the disinvestment movement was at its peak, also opposed it, instead favoring a policy of “constructive engagement” with the Pretoria regime.
• The policy shift may make the business unviable, resulting in a sale of stake or ownership.
• It is also known as majority disinvestment or complete privatisation wherein 100 per cent control goes to the private sector.

In the short run, this increased revenue will benefit organizations in that they can divert the funds to help another division that is not quite performing up to expectations. The norm is that divestment is done within the framework of restructuring and optimization activities. The exception would be if the company was being forced to divest a profitable asset or division for political or social reasons that could lead to a loss of revenue. Disinvestments, in most cases, are primarily motivated by the optimization of resources to deliver maximum returns. To achieve this objective, disinvestment may take the form of selling, spinning off, or reducing capital expenditures.

However, these are highly criticized, due to political reasons and become a matter of debate these days. Disinvestment is just the opposite of investment, i.e. it means pulling out the money invested in the company by selling the stake, either partially or fully. It is driven by the effective use of the resources, to earn the highest returns out of the money invested.

What is disinvestment?

Disinvestment got a much-needed boost during the Atal Bihari Vajpayee regime, when Arun Shourie was appointed the minister for disinvestments. Additionally, the government began disinvesting its stake in Maruti Udyog Ltd in 2002. In certain instances, the policies of the government may necessitate disinvestment in a particular business. A country may change its trade policy or curb imports of essential ingredients or components.

Additionally, companies divest their assets to obtain funds, shed an underperforming subsidiary, respond to regulatory action, and realize value through a break-up. Companies that are going through the process of bankruptcy will often be required by legal ruling to sell off parts of the business. The degree of disinvestment depends on the disinvestment policy of the government. In business, disinvestment means to sell off certain assets such as a manufacturing plant, a division or subsidiary, or product line. The process of disinvestments mainly seeks to optimise the resources of an undertaking to enhance the return on investment. The different forms of disinvestment include a stock sale, asset sale, spin-off, or demerger of the undertaking.

disinvestment

But when it doesn’t, then the ownership is transferred to the private sector, which results in privatisation. It is also known as majority disinvestment or complete privatisation wherein 100 per cent control goes to the private sector. In some cases, however, a company may be forced to sell assets as the result of legal or regulatory action. Companies can also look to a divestment strategy to satisfy other strategic business, financial, social, or political goals.

• The process raises funds which could be useful for the expansion as per the existing business plan.
• The norm is that divestment is done within the framework of restructuring and optimization activities.
• Divestment is the process of selling subsidiary assets, investments, or divisions of a company in order to maximize the value of the parent company.

Divestment is the process of selling subsidiary assets, investments, or divisions of a company in order to maximize the value of the parent company. Also known as divestiture, divestment is effectively the opposite of an investment and is usually done when that subsidiary asset or division is not performing up to expectations. One criticism of divestment focuses on the belief that institutional selling of a certain stock lowers its market value.

More meanings of disinvested

The assets or undertakings which are no longer profitable or fit in the business strategy, are sold. Similarly, a company should comply with the legal policies and rules of the country in which it operates or is headquartered. The policy may require a relook at its strategic partnerships or assets held globally. The aim of disinvestment is to facilitate re-allocation of funds or resources to better use or monetise assets.

Divestment executions are often forms of denouncement and delegitimization of an industry, such as in the fossil-fuel divestment movement. Negative public perception can lead to reform and changes in policy, both privately for the company and in the public sphere. Several states and localities did pass legislation ordering the sale of such securities, most notably the city of San Francisco. An array of celebrities, including singer Paul Simon, actively supported the cause. Disinvestment refers to the use of a concerted economic boycott to pressure a government, industry, or company towards a change in policy, or in the case of governments, even regime change. The term was first used in the 1980s, most commonly in the United States, to refer to the use of a concerted economic boycott designed to pressure the government of South Africa into abolishing its policy of apartheid.

Disinvestment is the action of an organization or government selling or liquidating an asset or subsidiary. Absent the sale of an asset, disinvestment also refers to capital expenditure (CapEx) reductions, which can facilitate the re-allocation of resources to more productive areas within an organization or government-funded project. Disinvestment refers to a strategy of selling off or liquidating some assets like plant, division, subsidiary, unit, etc, owned by the government or the organization. The strategy is adopted to reduce the losses incurred from non-performing assets, pulling out investment in a specific industry or sector, or to raise funds. Companies globally disinvest for financial, political, legal, or strategic reasons.

It happens when more than 51% of the shareholding of the government is transferred to private hands. In March, the Modi government claimed that it exceeded its disinvestment target for FY19 by Rs 5,000 crore after total receipts touched Rs 85,000 crore. Myanmar (formerly Burma) has also been the target of disinvestment campaigns (most notably the Massachusetts Burma Law initiated by the state of Massachusetts). Divestment campaigns have also been directed against Saudi Arabia due to allegations of “gender apartheid”. The University of California, Riverside’s Hillel chapter has a Saudi Divestment petition circulating as of 2007.

These examples are programmatically compiled from various online sources to illustrate current usage of the word ‘disinvestment.’ Any opinions expressed in the examples do not represent those of Merriam-Webster or its editors. The development of a nation is highly dependent on the growth of the industrial sector and its growth. Privatization of various sectors is in vogue since the last few decades, as it is believed that there is a tough competition in the private sector, which brings in better offerings at reasonable prices and less corruption. All content on this website, including dictionary, thesaurus, literature, geography, and other reference data is for informational purposes only.

More meanings of disinvesting

Since the late 1990s, disinvestment has become an almost regular feature of the Union budgets under successive governments, which set a target each year to raise funds from stake sales in public sector enterprises. Disinvestment has led to mixed results for the governments in terms of meeting the revenue targets. Governments select disinvestment candidates based on various factors, such as its existing stake in the company, adp can become a powerhouse through acquisitions private sector interest in ownership of that enterprise, general market conditions, expected value realisation etc. Items that are divested may include a subsidiary, business department, real estate holding, equipment, and other property, or financial assets. Proceeds from these sales are typically used to pay down debt, make capital expenditures, fund working capital, or pay a special dividend to a company’s shareholders.

Ronald Reagan, who was the President of the United States during the time the disinvestment movement was at its peak, also opposed it, instead favoring a policy of “constructive engagement” with the Pretoria regime. Some offered as an alternative to disinvestment the so-called “Sullivan Principles”, named after Reverend Leon Sullivan, an African-American clergyman who served on the Board of Directors of General Motors. These principles called for corporations doing business in South Africa to adhere to strict standards of non-discrimination in hiring and promotions, so as to set a positive example. Organizations may decide on the disinvestment of holdings that no longer fit with their social, environmental, or philosophical positions.

Complete privatisation is a form of majority disinvestment wherein 100 per cent control of the company is passed on to a buyer. The equity allocation provides long-term growth and the debt exposure reduces the volatility of the returns, thus offering the benefits of asset allocation in a single product. The most common reason for divestment is to eliminate non-performing, non-core businesses. Companies, especially large corporations or conglomerates, may own different business units that operate in very different industries, and which can be quite difficult to manage or distracting from their core competencies. One major current instance is the impact of the pandemic, remote work, and the rise of technology use and their impact on offices, commercial real estate. On the contrary, Privatization is a transition of government-owned company, operation, unit or division to the privately-owned enterprise.

Therefore, the company’s net worth becomes devalued and the owners of the company may lose substantial paper assets. In addition, institutional divestment may encourage other investors to sell their stocks for fear of lower prices, which in turn lowers prices even further. Finally, lower stock prices limits a corporation’s ability to sell a portion of their stocks in order to raise funds to expand the business. For example, a company may determine that its industrial tool division is growing faster and generating higher profit margins than its consumer tool division. If the difference in the profitability of the two divisions is large enough, the company may consider disinvesting (e.g. selling) the consumer division. After the disinvestment, the company could allocate both the sales proceeds and recurring capital expenditures to the industrial division to maximize its ROI.

Under this approach, sponsored by State Senator Jacqueline Collins, public pensions are prohibited from investing in any corporation or private equity firm that conducts business in Sudan, unless authorized to do so by the U.S. Ever since India opened up its economy to the world, the government has been distancing itself from industrial production. Years of monopoly across several industries led to Public Sector Undertakings (PSU) running inefficiently. Thus, the government began the process of disinvesting from loss-making and inefficiently-run PSUs in the 1990s.