The Department of Investment and Public Asset Management (DIPAM), entrusted with disinvestment of central public sector enterprises (CPSEs), has an uphill task ahead given that it is racing against time to meet the annual disinvestment target. DIPAM Secretary Tuhin Kanta Pandey, in a conversation with Dipak Mondal, lays down the road ahead for the department.
The Union Budget targeted Rs 2.1 lakh crore disinvestment, of which Rs 1.2 lakh crore was to come from CPSEs. Latest data shows only Rs 5,000 crore has been realised.
All pre-Covid Budgets across the world have gone topsy-turvy. The Coronavirus pandemic is an unprecedented event. Things changed beyond anybody's comprehension. Nobody anticipated that there could be a lockdown and people would not be able to travel for months together. Therefore, talking of a February budget under these extra-ordinary and uncertain circumstances may not be appropriate. We have to see going forward what we can do.
What is the realistic target now?
There is no specific number as on date, because our effort has been to look at what we can do during and post-Covid. So, we should do whatever best we can. If you get fixated with target numbers, then you need to factor in the several lost months.
The issue is what we can do, and what we have been able to do. In July, because the debt market was doing well, while the equity market had crashed, we raised more than Rs 10,000 crore through Bharat Bond ETF for CPSEs. It gave a fillip to capex proposals of CPSEs. We encouraged them to go to the market and raise bonds. They are well on course, trying to do their own capex, which is an important means of reviving the economy. When private sector appetite is not so good, because of these efforts, public investments have been accelerated. But because these funds were garnered through these bonds, they will not show up in disinvestment receipts. You need to look at DIPAM not merely from the disinvestment angle. We are actually into capital management of CPSEs.
Regarding disinvestment of equity, we need to see the impact of Covid on PSU stocks in general and specific sectors in particular. The quantum of receipts is a function of the number of shares and their value. If the value is too low, it may not be worth to dispose of stocks at a very low valuation. We need to have perseverance.
As the equity market revived, we participated in some things we could do - bringing stock to market where liquidity is low, where you don't actually have adequate stock in the market, because that's something which is being demanded by the market. For example, if you are below minimum public shareholding norms, then according to Sebi's requirements we need to achieve it. So we have treated that as a priority.
So, what is your Plan B now?
When you say Plan B, it is like changing strategy. Some of those are not just doing things, but in the manner we may take up our transactions. We came out with the Rs 444-crore Mazagon Dock initial public offering (IPO) and broke the jinx that PSUs cannot be listed effectively. It received subscription of Rs 65,000 crore (157 times the amount on offer). You may see it as a small number, but Mazagon Dock can encourage other IPOs of the government. That will bring new stocks to the market. It does not affect other stocks like price overhang, which happens when we keep coming to the market frequently for an existing stock. The price does not rise, and investors don't get returns - giving a poor perception of PSU stocks. We have to change that perception.
We have been able to do that to some extent. CPSE-ETF and Bharat-22 ETF have been very important instruments for raising disinvestment proceeds. But they have run their course. We do not intend to use them further at this stage.
The finance minister has emphasised that the strategic disinvestment pipeline is important because that could add a lot of value not only to stocks of existing PSUs, because management control will be passed on, but also to the overall government philosophy that it need not be in business. The strategy, therefore, is to build a strategic disinvestment pipeline. It does not happen overnight.
While some sectors are doing well, others are not. If pharma or telecom is the flavour of the season, it is because of Covid. You cannot expect the same for infrastructure. So, Plan B is based on available opportunities. We don't want to destroy the value of PSU stocks. We are not shy of disinvestment, but we want to disinvest in a manner that is effective and takes care of concerns of investors and government. We are sure if we build a strategic disinvestment pipeline, it will be a game-changer.
How much have you achieved?
In November 2019, we brought certain large, profitable enterprises for disinvestment. Our policy was to get away with some sick organisations. Getting away with a PSU depends purely on the interest in the market. If I am a seller, I would also need someone to buy. And there has to be competitive buying because these are public assets and taxpayers' money is involved. Competitive buying is affected by the state of the economy. You might say, there is plenty of capital available as Central banks around the world have opened their coffers, but it is not coming in every asset. It will come in for the assets where there are returns. Regarding minority stake sale, our very first big offer for sale (OFS) issue this year was Hindustan Aeronautics. This was a stock we had to disinvest as per Sebi's minimum public shareholding rules. So, we could raise Rs 5,000 crore. We also did the OFS of Bharat Dynamics and the Mazagon Docks IPO. Rail finance company, IRFC and Railtel have filed with Sebi for an IPO.
Is DIPAM also handling LIC listing?
Yes, DFS (Department of Financial Services) has requested us to handle LIC. It is a very large company with a huge asset base... There are four-five action points being taken simultaneously. Deloitte and SBI Caps have been appointed pre-IPO advisors. They have prepared a full activity chart for LIC, the milestones, what they have to do with accounts etc.
Huge preparations are needed to go public. Due to the LIC Act, it was exempted on many grounds, such as embedded value. Now, embedded value is required for insurance companies if they are going public. They have to go for embedded value and for that they need their own software and implementation.
Then there is a question of amendment of the Act. That part is being handled by DFS in consultation with us. That has to go to Parliament; the Act has to enable the IPO.
So, will it take time?
It will be done by early next fiscal, we are seeing if we can do it before March. We lost time due to Covid. Then the priority was to continue services. You have to appreciate how power and oil companies have carried on despite infections. In IRFC and Railtel, many people were suffering from Covid. Yet they are still going for the IPO.
The Budget numbers were based on the situation in November 2019, when we had strong candidates for strategic disinvestment - BPCL, Air India, Concor, Shipping Corporation. We could close some consolidation deals - these were closed in March itself like THDC and NEEPCO which were sold off to NTPC.
Some very large transactions where the expression of interest came in March - Air India and BPCL - could not be done. Our strategic disinvestment plans got impacted. It is not a financial dealing where you invested as a minority shareholder, picking up 2 per cent stake. In strategic disinvestment, the investor has to make his mind because he will handle that asset for next 20-25 years. While strategic disinvestment has been delayed, it has not been derailed. It is back on track.
What is happening now?
We will come out with expressions of interest in November. BEML is ready, then there is Neelanchal Ispat Nigam and Shipping Corporation of India. Concor, too, will happen hopefully. We are waiting for the Railways to finalise the land lease policy.
What response are you getting for these companies?
The response is good as they came to us as part of our changed strategy. In November, we changed the strategy to look at companies which have potential.
So, all these will be privatised?
Yes, these are meant for privatisation, because these are decisions taken at the Cabinet level. It has been decided to privatise BPCL, except Numaligarh Refinery, which will be disinvested to a CPSE.
So, are there more on the list?
I think the next tranche will come. Niti Ayog will look into it. A couple of steel plants - Salem Steel and Bhadravati Steel - both subsidiaries of SAIL have crossed stage one, which means they are at the bidding stage. The money will go to SAIL.
If you only see numbers you will say that you have done this transaction but no money has come. That's not how we look at it. We are looking at whether we can successfully complete the intent of the government to privatise effectively because these are happening after 14-15 years. Initially, when certain exits were planned, we got into a problem because in some cases, despite repeated attempts, we did not find buyers. We would need to go for closure of companies such as Scooters India because we were not successful in finding buyers. In the case of Bharat Pumps and Compressors, too, we didn't find buyers. In four cases, strategic disinvestment started, but we didn't find buyers. Those units will need to be closed.
The government has been saying that barring four strategic sectors, it will exit from all other PSUs. So, what are these strategic sectors?
The finance minister had announced in May as a part of reforms in the Atmanirbhar package that the government will come out with a new PSE policy, whereby certain strategic sectors will be listed in which there will be minimum public sector presence and beyond that the CPSEs will be considered for privatisation or consolidation. The CCEA will soon decide on the policy.
What is happening to the sale of Air India?
The process is back on track (after Covid disruption). We have moved to revise the bid criteria of enterprise value to give flexibility. We have notified (the changes) and we are hopeful that it will proceed. The EoI has been amended, we have unfrozen the debt and we have said that debt will be discovered in the market through the bidding process and bidding will based on enterprise value - which means total debt and equity - and not just on equity value. Since Air India has been in losses for several years when there was no Covid, it will be appropriate if the government continues the disinvestment process or we will end up infusing a lot of tax payers' money into it without any assurance that it will turn the corner.
If the Jet Airways debt issue can be resolved through IBC, why not Air India?
We have looked into that. The problem is much of the debt (in Air India) is government guaranteed, which means nobody takes a haircut, only government takes the cut. We have seen all options and the best option is to carry on with the disinvestment process.
Are you looking at only those buyers in the airline business?
No, our EoI does not say so. It is open. We have a net worth criteria, that's all. There are no technical criteria, because technical people can be hired by strategic buyers.
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