Disinvestment. This word has proved to be a challenge for successive governments. Divesting government equity in public sector enterprises (PSE) has proven to be quite volatile even for the BJP-led NDA government over the past nine years, despite a handful of mega transactions like the privatisation of Air In - dia and public listing of Life Insurance Corporation of India (LIC).
The government’s disinvestment strategy has been quite comprehensive, including not just listing and minority stake sales through offer for sale (OFS) and buyback of shares but also strategic sale or privatisation in identified sectors, monetisation of non-core assets as well as closure of those firms that are no longer viable—such as Scooters India. Despite that, the transactions have been fewer in number and smaller in scale. As many as 159 disinvestment transactions have taken place in the last nine years, gov - ernment data reveals. In terms of strategic sales, the Union Cabinet gave in-principle approval to 36 cases of PSEs, subsidiaries and joint ventures since 2016. But of the 33 cases being handled by the Department of Investment and Public Asset Management (Dipam), strategic disinvestment transactions have been completed in only 10, including the privatisation of Air India.
“About 14 transactions are at various stages,” Minister of State of Finance Bhagwat Karad had informed the Lok Sabha in July this year. But given the government’s mandate with more than 300 seats in the Lok Sabha and its public intent towards strategic sales and disinvestment, expectations were high.
Pranav Haldea, MD of capital markets data provider PRIME Database Group, sums it up. “I expected more strategic divestments and privatisations to have taken place. Instead, there have primarily been more of small minority stake sales, apart from the big-ticket and long pending privatisation of Air India,” he notes. According to Haldea, the focus of the government should only be in education, healthcare and infrastructure where there is much to be done.
LOWER THAN ANTICIPATED NUMBERS
The numbers also reflect this shortfall. Targets for receipts from disinvestment have been revised in most years with the receipts from stake sales often lower than anticipated. The Revised Estimates have been lower than the Budget Estimates in seven of the nine fiscal years since 2014-15 (See Chart At Snail’s Pace). Higher dividends from state run firms have often helped make up for the shortfall in revenue and helped manage the fiscal deficit.
But government officials and experts stress that disinvestment cannot be seen just as a cash cow. Correct processes, due diligence, value maximisation and timing the market are more important than just rushing to meet a specific goal. Vivek Kumar, Economist at QuantEco Research, notes that the Budget targets for disinvestment are also aspirational in the sense that this is what the government would like to do. “But to a large extent, disinvestment is dependent on market conditions. There are also procedural delays or political opposition that led to a shortfall in the target,” he points out. Consequently, several transactions, especially those relating to strategic sales where government equity and management control have to be transferred to the successful bidder often take longer than anticipated. For instance, there’s a whole lot of due diligence required in the privatisation of IDBI Bank. Strategic sales in Shipping Corporation of India and Bharat Earth Movers require demerger and listing of their non-core businesses that consist of land assets.
Interest from investors has also proven to be a stumbling block and getting the right price is a prime consideration. Take for instance the disinvestment of the debt-ridden erstwhile national carrier Air India, which took three attempts over a period of 20 years before it could be sold off to the Tata group. In the case of LIC, the IPO size was cut to 3.5 per cent from the planned 5 per cent because of choppy capital market conditions.
Then there are some that have not taken off. In the case of Container Corporation of India, while the Union Cabinet’s approval has been in place for some time and a land lease policy was also cleared last year, the exercise seems to be on hold. The strategic disinvestment in Pawan Hans has been scrapped and that of Bharat Petroleum Corp. also seems to be in deep freeze.
THE WAY AHEAD
Meanwhile, the operationalisation of the National Land Monetisation Corporation (NLMC) is underway but could take some time. The NLMC, which was approved by the Union Cabinet in March 2022, aims to monetise land and other non-core assets of central public sector enterprises (CPSE) that are being taken up for strategic sale and closure. The department of public enterprises, which is the nodal ministry in charge of this initiative, has recently selected international property consultants, including SBI Capital Markets and CBRE South Asia, to provide transaction advisory services for monetisation of such assets.
It is also in the process of appointing a CEO and Non-executive Chairperson, as well as professionals to man the agency.
Much remains to be done on the National Monetisation Pipeline as well, which had estimated asset monetisation of Rs 6 lakh crore for FY22-25. The value of assets envisaged to be monetised was about Rs 88,000 crore in FY22 and Rs 1.6 lakh crore in FY23. The actual numbers were Rs 97,000 crore in FY22, and about Rs 1.3 lakh crore in FY23. For FY24, the target is about Rs 1.8 lakh crore and government agencies are working out strategies. The National Highways Authority of India is looking to raise nearly Rs 45,000 crore through asset monetisation.
With general elections approaching, the market is anticipating another slowdown in the disinvestment drive in FY24 though Dipam Secretary Tuhin Kanta Pandey has said that ongoing transactions are under process and the strategic sale in IDBI Bank and Shipping Corporation of India are on track. “It seems that the IDBI Bank stake sale may not take place in FY24. We don’t expect any big-ticket disinvestment right now and it is likely that these may take place in 2025-26,” says Swapnil Shah, Director-Research at StoxBox, an online brand of stockbroking firm BP Wealth. He adds that even larger investors may await clarity on the political front before stepping in to participate in stake sales.
The Union Budget 2023-24 has set a target of Rs 51,000 crore from disinvestment. But, till now, disinvestment receipts have helped raise a tad over Rs 11,500 crore, comprising Rs 5,955.68 crore as dividend from CPSEs and Rs 5,600.93 crore through OFS and other transactions. A minority stake sale in Indian Railway Finance Corp. and the IPO of Indian Renewable Energy Development Agency are expected in the coming months. Dipam has also started work on the disinvestment of Indian Medicines Pharmaceutical Corp.
Though it is early days, finance ministry officials are understood to be reviewing the fiscal math and believe non-tax revenue through higher dividends such as the Rs 87,000 crore-plus payment by the RBI may help the centre meet its targeted fiscal deficit of 5.9 per cent in FY24.
Expediting stake sales in PSEs is likely to remain a key priority for whichever government comes to power next year. Not only will it help bridge the fiscal deficit but it will also lead to better functioning, corporate governance and transparency in these firms. A recent report by Bank of Baroda had said that the potential kitty from disinvestment receipts if the government decides to bring down stake in all PSEs, public sector banks and other financial institutions to 51 per cent would be at about Rs 3.5 lakh crore. Of this, Rs 1.7 lakh crore can come from PSEs and Rs 1.8 lakh crore from financial institutions, it said.
Clearly, disinvestment will remain the buzzword in the years to come although it’s unlikely to become less challenging.
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