Divestment activity to continue in March quarter

2 mergers, 3 IPOs, 3 offers-for-sale, another tranche of Bharat 22 ETF on cards

With the Centre aiming to substantially overshoot its original disinvestment target for 2017-18, much activity is planned for the rest of the financial year. It plans to complete two mergers among state-owned companies, three more of initial public offers of equity (IPOs), three offers-for-sale and a second tranche of its Bharat 22 exchange traded fund (ETF).

Officials are confident of completing the takeover by Oil and Natural Gas Corporation of Hindustan Petroleum in the next two months. That alone will garner around Rs 30,000 crore for the exchequer. 

State-owned construction company NBCC bought Hindustan Steelworks Construction earlier this year; it might buy another smaller construction and engineering unit in the state sector, Business Standard has learnt. The candidates are Hindustan Prefab, Engineering Projects India, NPCC, and HSCC. It is learnt one of these could be taken over by NBCC this financial year (FY18).

“There has been massive interest among investors for the Bharat 22 ETF. A call will be taken soon on whether to launch a second tranche in the January-March quarter,” said a senior government official. The 22-stock ETF, launched last month, earned the Centre Rs 14,500 crore after being subscribed fourfold. 

After the market debuts of General Insurance Corporation and New India Assurance earlier this year, the Centre will carry out at least three more IPOs before March 31. These are likely to be of defence behemoth Hindustan Aeronautics and two railway companies, Ircon and RITES. 

Work continues on other planned IPOs, like those of IRCTC, IRFC, Garden Reach Shipbuilders, Bharat Dynamics, and Mazagon Dockyards. However, these are unlikely to be completed in FY18.

Preparation is also on for a number of offers-for-sale. The plans are for a 10 per cent stake in NHPC, Power Finance Corporation, and Steel Authority of India; 15 per cent in NLC, five per cent in Rural Electrification Corporation, and three per cent in IndianOil. Sources say three would be completed before the year is out. In August, a seven per cent stake was sold in NTPC.

As reported in Business Standard earlier, disinvestment targets for the year might not only be met for the first time since 2009, but exceeded by as much as Rs 20,000 crore. This will compensate for some of the expected shortfall in other revenue heads. The total divestment target for this financial year is Rs 72,500 crore, highest for any so far. The proceeds are Rs 52,500 crore at present, more than 2016-17’s Revised Estimate of Rs 45,500 crore.

The fiscal deficit target for 2017-18 is Rs 5.46 lakh crore, or 3.2 per cent of gross domestic product (GDP). As of end-October, this was 96.1 per cent of the full-year target. Over the first six month, the deficit was 6.3 per cent of GDP. The finance ministry has reined in spending over the past few months and will continue to do so, after front-loading of spending in the first half.

On the revenue side, there are concerns. There could be a tax revenue shortfall of Rs 20,000 crore due to revision in the goods and service tax (GST) rates, Bihar Deputy Chief Minister Sushil Modi said in the latest GST Council meeting at Guwahati. Central government officials say that was his view and a shortfall could be offset by greater compliance and increase in demand. 

Also, as reported by Business Standard, the Central Board of Direct Taxes has asked for lowering of its target by Rs 20,000 crore, compared to the Budget Estimate, due to slowdown in economic growth.

The Reserve Bank of India (RBI) has paid a surplus this year of Rs 30,600 crore. The Centre says it was expecting around Rs 43,000 crore. There is no certainty that RBI will give the rest. There could be a shortfall in telecom spectrum revenue as well.

Earning a Crust In Divestment Pie

·         ONGC-HPCL merger to be completed in next two months
·         NBCC to buy another smaller construction
·         PSU this fiscal year
·         HAL, RITES, Ircon IPOs could be completed by March 31
·         Thee offers-for-sale could be done soon
·         Officials planning another tranche of Bharat 22 after investor interest