Let Cash-Rich PSEs Buy Out Sick Ones

This would yield funds and re­de­ploy as­sets

The Economic Times - - The Edit Page -

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.

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