Let Cash-Rich PSEs Buy Out Sick Ones
This would yield funds and redeploy assets
The government is reportedly mulling buyback of shares by cash-rich central public sector enterprises (PSEs), so as to meet the disinvestment target of 56,500 crore for this fiscal. The share buyback is a terrible idea that would almost certainly amount to so much money down the drain in a volatile capital market, against the backdrop of much global uncertainty. The Centre needs to nip the buyback plan in the bud and invite PSEs with large reserves to buyout and takeover sick PSEs.
The latest available public enterprise survey shows that 77 PSEs were in the red for 2014-15, with the losses amounting to over 27,000 crore for the year. And many of the loss-making PSEs have valuable real estate and other assets that need to be speedily redeployed, to better allocate resources for the greater good. True, cash-rich PSEs have large reserves of over 2.5 lakh crore and these need to be gainfully invested or returned back to the main shareholder, the government. But instead of buyback and attendant financial engineering that would need coping with the vagaries of the marketplace, we need more fundamental reform in the real economy and tackle the huge drag of sickness and sheer unviability in PSEs. The private sector remains unwilling or unable to ramp up investment given high leverage and weakened balance sheets.
Sick PSEs need taking over by the cash-rich PSEs for purposes of synergy and to unlock shareholder value. It would amount to gainful disinvestment and far better use of scarce resources. It would also be as per the recent S K Roongta committee report that was tasked to chalk out a reform roadmap for state-owned enterprises. It is possible that a good monsoon would boost the Sensex. But such a prospect would make the buyback idea all the more redundant. Many public sector stocks may well underperform market indices. Hence the need to proactively address the ground reality and fast-forward public sector reform. Share buybacks and other quick fixes can hardly be worthwhile solutions going forward. They need to be promptly shelved.