Divestment: Questions still remain on privatisation and asset monetisation

In December 2016, the Narendra Modi cabinet had decided to sell surplus land held by four pharma companies - Hindustan Antibiotics Limited (HAL), Indian Drugs & Pharmaceuticals Limited (IDPL), Rajasthan Drugs and Pharmaceuticals Ltd (RDPL) and Bengal Chemicals & Pharmaceuticals Ltd (BCPL).

The idea was to sell the real estate through open competitive bidding to other government agencies and clear the outstanding dues payable to employees from the proceeds. The outstanding liabilities included unpaid salaries and voluntary retirement scheme dues.

Then, earlier this month, the cabinet decided to shell out Rs 330.35 crore from its own coffers to pay the dues, as there were no takers for the land, even among other state-owned entities. The surplus land has now been opened up to potential buyers from the private sector as well.

This example, along with the failed Air India bid last year, perfectly illustrates the challenges that the government, and specifically the Finance Ministry’s Department of Investment and Public Asset Management (DIPAM) face in meeting a disinvestment target which has privatisation of state-owned companies and asset monetisation as its cornerstone.

The budgeted disinvestment target for 2019-20 was raised by Finance Minister Nirmala Sitharaman to Rs 1.5 trillion from the interim budget target of Rs 90,000 crore. It is the highest ever disinvestment budgeted estimate, given that there is a shortfall anticipated from direct and indirect tax revenues.

Over the past two years, DIPAM has crossed the budgeted targets set for it. In 2017-18, as against a target of Rs 72,500 crore, it achieved a record Rs 1 trillion. In 2018-19, versus a target of Rs 80,000 crore, it raked in Rs 84,972 crore.

These achievements came on the back of big mergers and acquisition among state-owned companies, and the Centre’s two flagship exchange-traded funds, the CPSE ETF and the Bharat 22 ETF. The two big acquisitions were ONGC buying a majority stake in Hindustan Petroleum in 2017-18 and PFC picking up the Centre’s stake in REC Ltd in 2018-19.

In both the years, the government did intend to privatise a number of state-owned companies. Even excluding Air India, the Centre has been looking to sell PSUs such as Scooters India, Pawan Hans, Central Electronics, Engineering Projects India Ltd, IMPCL and a dozen other companies. Transaction advisors were hired, and in some cases DIPAM actively sought buyers. But none were forthcoming.

So, just like Air India, DIPAM is taking another shot at privatising these PSUs. Another set of requests for proposal have been issued to select transaction and legal advisors. Some new assets are also up for privatisation, including three plants owned by SAIL. But the same questions remain. Who will buy these companies and under what conditions?

“The privatisation process is slow, and the Centre is unwilling to make the deal attractive for potential bidders beyond a point. The reason is that every official fears that some years down the road, there will be enquiries by the Central Vigilance Commission, investigative agencies and the judiciary,” said an official. The conditions are made so tight that it becomes difficult to do a large privatisation deal, the person said.

Then there is asset monetisation. DIPAM is in the process of appointing a panel of six transaction advisors who will help it with sale of non-core assets of PSUs.

The first non-core assets up for grabs will be the ones DIPAM had identified last year. These include land, factories, apartments and office space belonging to PSUs such as Project and Development India Ltd, Hindustan Prefab, Bridge and Roof Co, Scooters India, Bharat Pumps and Compressors, Hindustan Newsprint Ltd and Hindustan Fluorocarbon Ltd.

Then there are plans to sell or monetise around six state-owned stadiums, including the iconic Jawaharlal Nehru stadium, and four heritage rail operations, including Darjeeling, Kalka-Shimla and Nilgiris. Other assets which could be monetised include pipelines of GAIL, mobile towers of BSNL and MTNL, and ATMs of state-owned banks.

“This is a step into the unknown for us. The first time such assets are planned to be monetised. So while efforts are underway to get some of them done this year itself, these processes are time-consuming,” admitted the official quoted above. Here also the same concerns arise, of doing things by the book, lest there is a chance of investigation in the future. Also, privatisation and asset monetisation have always been a political hot potato in India.

Of course, the Centre has other plans to meet its divestment target. DIPAM will now be allowed to reduce the Centre’s stake in some companies to below 51 per cent, provided another PSU (like LIC Ltd) holds a stake in these PSUs, which will ensure that the government’s stake plus the PSUs stake remains above 51 per cent.

DIPAM has also lined up 10 initial public offerings this fiscal, including THDC India Ltd, Railtel, Mazagon Dock Shipbuilders, Goa Shipyard, Hindustan Shipyard, Neepco Ltd, TCIL Ltd, Water & Power Consultancy Services and FCI Aravali Gypsum.

There are also plans to launch three more sector-specific ETFs, while the existing ones continue to bring in good news. The Centre has already raked in Rs 12,357.5 crore so far this year, primarily due to a follow-on offering of the CPSE ETF. However, there are no firm plans for a mega PSU merger.

So, in conclusion, while DIPAM can still meet or come close to the divestment target of Rs 1.05 trillion, it may not be on the back of strategic sales or asset monetisation.