The government has been on a mission to raise revenues by divesting its stakes in public sector enterprises. The man in the centre of all the action is Tuhin Kanta Pandey, Secretary in the Department of Investment and Public Asset Management (DIPAM). Pandey says that for DIPAM, capacity building is a priority as it doesn’t have too much institutional memory of privatisation. And while the Bharat Petroleum Corp. (BPCL) divestment has been put on the back-burner, there is a steady pipeline going forward. In a chat with Business Today, he talks about the challenges on the disinvestment path and the way ahead. Edited excerpts:
On the challenges to privatisation
The first challenge is, are the people [employees] ready? They are the stake holders in the corporation; the first challenge is employees asking if they are being abandoned. From a policy viewpoint, sustainable jobs can only come from sustainable businesses. Some people might say, ‘why are you divesting a profit-making corporation? Divest the loss-making ones only’. That’s not how it works because today’s profit-making [organisation] could be tomorrow’s loss-making one... In real privatisation, where the management control gets passed on, those organisations have grown—[both in terms of] productivity and profit. Another challenge is the bidding universe, where the competitive bidding process will be dependent on the bidders. If we want good bids, it depends on the kind of company [being bid for]. It might also be linked to timing. Many times, the timing or market conditions are not favourable. In some cases, we have also done two or three EoIs [expressions of interest).
We have to be mindful that if we take too much time... the company may deteriorate in value, and we may end up getting less value in the next round.
On the challenges of valuation
This emanates from a certain amount of opposition. Our processes are grounded upon competitive bidding. [When] we say that we are dealing with public assets… It’s not just assets; it’s assets and liabilities [taken] together. In dealings with public companies, there has to be a certain amount of discovery. The reserve price is only an added comfort... it doesn’t determine the final price, like in the case of Air India. The reserve price [for Air India] was Rs 12,900 crore; but the first bid was Rs 18,000 crore. So, the reserve price is merely your own internal exercise—the level at which I will treat it as a going concern.
[As for] valuations, we do not have the technical expertise… We hire people [for this], and these are the same people who are hired by private companies… So, you have investment bankers coming in, and we sign clauses that they should not have conflict of interest. And then, we have legal advisors who have been in this field for years. The hired professionals tell us what the assets are worth. Then we look at what an asset would fetch, as there are also liabilities that have to be taken off. Are we selling it [the asset] too cheap? [To prevent that,] we have added benchmarks, a reserve valuation; and that reserve value is again determined through multiple methodologies. So, when you are selling an asset, you must value it as a business, not as a value where you are scrapping, liquidating or closing it. Closing or liquidation is a totally different concept because then the employees have to be sacked.
On BPCL
BPCL is a large, healthy, profit-making organisation. It was not a favourable time [for privatisation]; that’s why the bidders walked out. [But] people are realising that there is a lot of under investment in the sector... In the next six months, things would be clearer on how to move forward.
On the stalled Concor and Central Electronics Ltd (CEL) privatisations
CEL informed us that certain things were raised by the employees’ organisations… [that] have gone to court. We have also put in our affidavit…. [Then] there is the NCLT issue that we have to take a call on. Soon we will have clarity on whether it will be possible for us to call it [CEL’s privatisation] off. Concor’s [privatisation] is contingent upon the land policy and the [Indian] Railways is quite actively working on it.
On plans for the IDBI Bank listing
Right now, we are involved in [online] road shows and we will also do certain physical road shows. In the case of LIC, we did not have the time and resources to do certain physical road shows. We should be good to go in a month or so [for IDBI Bank].
On the privatisation of Pawan Hans
An adverse order has come against one of the consortium partners, not in terms of this particular thing but some other things related to the NCLT order. We have asked the transaction advisor to give us clarity. The partner has told the transaction advisor that it is ready to pay, and is financially sound. As soon as we get clarity from the transaction advisor, we will take a call.
On the government’s Rs 65,000-crore disinvestment target for FY23
Covid-19 has taught us one thing: that uncertainty is very high and predictability is very low. After every [Union] Budget [in the past three years], we have [seen] a dramatic change. After the 2020 Budget, the pandemic commenced; in 2021, it was the Delta virus; and this year, it was Omicron. [But] disinvestment is only one part of the story. You should also pay attention to the dividend we [PSUs] are doing; we did Rs 55,000 crore last year. We are hoping for the best. The disinvestment target is just indicative; if the transaction does not conclude, we get zero. It’s binary— either you get zero, or the full [amount].