Centre aims big on strategic sales

Biggest strategic divestment planned for completion in FY18 is sale of its 51% stake in HPCL to ONGC

After slow progress over the past two years regarding privatising state-owned companies, the government is looking to speed up the process of ‘strategic disinvestment’. On Wednesday, the Cabinet committee on economic affairs (CCEA) approved the setting up of a high-powered committee of ministers that will shorten the time taken from identification of a company to its final sale.

The committee, dubbed an ‘alternative mechanism’, will consist of Finance Minister Arun Jaitley, Road Transport and Highways Minister Nitin Gadkari, and the minister of the administrative department whose company has been earmarked for strategic sale.

Senior government officials told Business Standard that the alternative mechanism could enable the Centre to increase the quantum of strategic sales by simply cutting down the number of times the Department of Investment and Public Asset Management (DIPAM) has to approach the Cabinet for any particular sale.

"The final decision on the privatisation and approving the buyer rests with the CCEA. However, the alternative mechanism will decide from the stage of inviting of expression of interests (Eols) till inviting of financial bids. For these processes, we do not have to approach the CCEA," an official said.

For 2017-18, the total budgeted disinvestment target is Rs 72,500 crore, of which Rs 46,500 crore is expected to come in from minority stake sales, buybacks, mergers, public listings, and through the CPSE ETF route. An amount of Rs 15,000 crore is budgeted to come in from strategic sales. The remaining Rs 11,000 crore is expected to come from the earlier-announced plans to list five state-owned general insurance companies.

The biggest strategic divestment that the Centre has planned for completion in this financial year is the sale of its 51 per cent stake in Hindustan Petroleum (HPCL) to ONGC Ltd, a deal that could be valued at nearly Rs 33,800 crore at HPCL’s Thursday closing price. If realised, this amount will blow the strategic sales target clean.

DIPAM has also issued request for proposals to hire advisors to help with the strategic divestment of the loss-making Scooters India Ltd. It also has plans to privatise BEML Ltd, Pawan Hans, and Hindustan Prefab. The most high-profile announcement has been the planned privatisation of Air India but officials maintain that it is unlikely to be completed in this financial year.

The Finance Ministry also plans to merge a number of loss-making PSUs with larger state-owned rivals in similar sectors. There is a recommendation to close State Trading Corp and PEC Ltd and to merge their assets with the bigger MMTC Ltd.

State-owned and listed construction company NBCC Ltd has already bought Hindustan Steelworks Construction Ltd. There are also plans to merge smaller PSUs in the construction space, such as Hindustan Prefab, Engineering Projects India Ltd, NPCC Ltd, and HSCC Ltd, with the larger NBCC.

While the Centre has fallen short of disinvestment targets for a number of years, the response from strategic disinvestment has been particularly tepid. It should be remembered that the government considers the sale of its stake in non-PSUs as part of strategic disinvestment as well. This includes the stake it holds in Hindustan Zinc, as well as in ITC, Axis Bank, and Larsen & Toubro through the specified undertaking of unit trust of India (SUUTI).

The strategic disinvestment target in 2016-17 was Rs 20,500 crore. The revised estimates came in at just Rs 5,500 crore. In 2015-16 and 2014-15, there were zero proceeds from strategic disinvestment, as opposed to targets of Rs 28,500 crore and Rs 15,000 crore, respectively.

Centre aims big on privatisation this financial year

Figures (Rs crore)	2014-15 budgeted	2014-15 actual	2015-16 budgeted	2015-16 actual	2016-17 budgeted	2016-17 revised	2017-18 budgeted
PSU stake sale	43,425	32,620.5	41,000	42,131.7	36,000	40,000	46,500
Strategic sale/stake sale in non-PSUs/others	15,000	Nil	28,500	Nil	20,500	5,500	26,000