From IRFC to Mazagon Dock, glut of PSU public offers to continue in 2018-19

The spree of initial public offerings of equity (IPO) by state-owned firms will continue in 2018-19. First up are likely to be rail companies Rites and IRFC, which will be taken public by May, Business Standard has learnt.
 
Two more rail public sector undertakings (PSUs), Ircon and RVNL, are expected to follow later in the year. However, the planned IPO of IRCTC has been put in cold storage indefinitely, with neither the rail ministry nor the department of investment and public asset management in favour.
 
The government's combined disinvestment target for 2018-19 is Rs 800 billion. The other IPOs expected include Mazagon Dock Shipbuilders, Garden Reach Shipbuilders & Engineers, and three general insurance PSUs, which will be merged into a single entity and then listed on the exchanges. These are National Insurance, Oriental Insurance and United India Insurance. The two shipbuilders are expected to be taken public in the first half of the coming financial year.

 

According to senior government sources, the listing of Rites and IRFC will happen before May-end, Rites being the first. That IPO could involve a 12 per cent stake of the Centre. In the case of IRFC, 10 per cent could be offloaded. A 25 per cent stake sale is being planned with RVNL.
 
Earlier, there were doubts over the IRFC listing because of a deferred tax liability issue. However, the ministry of corporate affairs has since exempted the company from an accumulated deferred tax liability of Rs 63.92 billion, which will add to the net worth.
 
There are various reasons why the planned IRCTC offer is now in cold storage. "When a major source of income of a company is service charge on booking of tickets and other services, and when that service charge is removed by the government, investor interest will, of course, be lukewarm," said an official when asked why.

 
In the aftermath of demonetisation, the Narendra Modi government took a number of steps to popularise digital transactions. One of these was to phase put the service charge levied by IRCTC.
 
The move had wiped out Rs 5 billion from IRCTC's annual revenue. Though the finance ministry was expected to reimburse this, only Rs 800 million was reimbursed. SBI Capital Markets, IDBI Capital Markets & Securities, Elara Securities India, and IDFC Bank are the advisors to Rites for the issue. ICICI Securities, SBI Caps, IDFC and HSBC are bid managers for IRFC.
 
The year 2017-18 saw a record six IPOs of PSUs, which netted but Rs 240 billion, nearly a quarter of the year's revised disinvestment estimate of Rs 1 trillion. These companies were New India Assurance, General Insurance Corp, HAL, Bharat Dynamics, Cochin Shipyard and Hudco.