Centre gears up for divestment drive
Offers for sale, IPOs, ETF and mergers and acquisitions planned to raise ~72,500 cr
After a brisk start to the Centre’s 2017-18 disinvestment programme, the finance ministry’s Department of Investment and Public Asset Management (Dipam) has lined up a healthy pipeline to meet a highly ambitious target of ~72,500 crore. On tap are a number of stake sales through the offerfor-sale routes, several market debuts of defence and rail public sector units, a new exchange-traded fund, mergers and acquisitions in the public sector undertaking space, and buybacks by cashrich companies. ARUP ROYCHOUDHURY writes
After a brisk start to the Centre’s 2017-18 disinvestment programme, the finance ministry’s Department of Investment and Public Asset Management (Dipam) has lined up a healthy pipeline to meet a highly ambitious target of ~72,500 crore.
On tap are a number of stake sales through the offer-for-sale route, several market debuts of defence and rail public sector units, a new exchangetraded fund (ETF), mergers and acquisitions in the public sector undertaking (PSU) space, and buybacks by cash-rich companies.
On Friday, Finance Minister Arun Jaitley unveiled the Centre’s new central public sector enterprises (CPSE) ETF, comprising 22 public sector companies and private sector ones in which the government holds substantial stakes. Named Bharat-22, it has companies from six sectors. The constituents of the basket are Nalco, ONGC, Indian Oil, Bharat Petroleum, Coal India, State Bank of India, Axis Bank, Bank of Baroda, Rural Electrification Corp, Power Finance Corp, Indian Bank, ITC, Larsen & Toubro, Bharat Electricals, Engineers India, NBCC, Power Grid Corp, NTPC, Gail India, NHPC, NLC India, and SJVN.
During the announcement, Jaitley said the exchequer had garnered ~9,300 crore from disinvestment proceeds as of August 4. The latest issues are the initial public offering of Cochin Shipyard and the offer-for-sale of Hindustan Copper.
The disinvestment targets set in the annual Budget, are hardly met. But, in absolute terms, Dipam has been achieving new highs every year. For example, disinvestment’s budgeted estimate for 2016-17 was ~56,500. The revised estimate was ~45,500 crore — short of target but the highest annual proceeds. Some analysts said this year would not be different. Others pointed to the hectic pace of stake sale activity and said the targets might be met.
“If past record is anything to go by, we don’t expect this year’s budgeted target to be met,” said D K Srivastava, chief policy advisor, EY. “They (the Centre) would still underachieve. Having said that, in absolute terms they would probably divest more than they have in previous years. The market conditions are also favourable.”
An encouraging sign was that the disinvestment programme started early this year, said Shubhada Rao, chief economist with YES Bank. “Which allows us to get visibility of likely completion of the targets. Disinvestment activity is picking up pace. Earlier, it used to pick up in the second half of the year. This time, the government is planning better and gauging the market conditions early.”
Dipam is working on a few proposals. It is planning to offload 10 per cent in NHPC, NTPC, Power Finance Corporation and Steel Authority of India, 15 per cent in Neyveli Lignite Corporation, five per cent in Rural Electrification Corporation and three per cent in Indian Oil through offers for sale. There are also a number of initial public offerings being planned for state-owned rail, defence and insurance companies, including IRCTC, IRCON, IRFC, RVNL, Garden Reach Shipbuilders, Mazagon Dock Shipbuilders , Bharat Dynamics, New India Assurance, General Insurance, National Insurance, Oriental Insurance and United India Insurance. Dipam also plans to issue a fourth tranche of its first CPSE ETF.
The Centre has planned a number of mergers and acquisitions in the PSU space this financial year. ONGC’s takeover of Hindustan Petroleum has already been cleared by the Cabinet and mergers of other energy PSUs are being considered. State-owned and listed construction company NBCC has bought Hindustan Steelworks Construction. There are also plans to merge smaller PSUs in the construction space — such as Hindustan Prefab, Engineering Projects India, NPCC, and HSCC — with NBCC.
Of the FY18 disinvestment target of ~72,500 crore, ~46,500 crore is expected to come from minority stake sales, buybacks, mergers, public listings and through the CPSE ETF route. About ~15,000 crore is budgeted to come from strategic sale in PSUs and in SUUTI. The remaining ~11,000 crore is expected to come from the listing of five stateowned general insurance companies.