Budget 2018: Government set to reap Rs 1 trillion via divestments this year

Target for 2018-19 raised to Rs 800 billion

The Centre is set to garner its highest-ever proceeds of Rs 1 trillion through divestment of state-owned entities in 2017-18, compared to a budgeted estimate of Rs 725 billion. And, for 2018-19, Finance Minister Arun Jaitley has set a target of Rs 800 billion for the Department of Investment and Public Asset Management (DIPAM).

The revised estimates of Rs 1 trillion is around Rs 110 billion more than the disinvestment proceeds of the previous two fiscal years put together. The centrepieces are, of course, the acquisition of HPCL’s 51 per cent stake by ONGC for Rs 369 billion and the launch of the Bharat 22 exchange traded fund (ETF) for Rs 145 billion. 

The finance minister also said that DIPAM will launch a debt-focused ETF in the coming financial year.

“The government has approved [the] listing of 14 CPSEs (central public sector enterprises), including two insurance companies, on the stock exchanges. The government has also initiated the process of strategic disinvestment in 24 CPSEs. This includes strategic privatisation of Air India,” Jaitley said in the Lok Sabha while presenting the Budget.

It should be remembered that these approvals are not bound by any year and some of them, including the listing of two insurance companies, namely New India Assurance and GIC, have already taken place this fiscal. Air India’s privatisation is expected to be complete by October 2018.

Jaitley also said that three general insurance public sector undertakings (PSUs), which have not been divested yet, will be merged into a single entity and then listed on the exchanges. These are National Insurance, Oriental Insurance and United India Insurance.

“These three companies will be merged because they operate in similar areas. We believe that once they are combined, it will unlock greater value for investors when the listing of the new entity is carried out,” a senior government official told Business Standard.

The government launched its second PSU ETF, the Bharat 22 ETF, in November 2017 and raised Rs 145 billion, which was over-subscribed in all segments. 

“Just like a CPSE equity ETF comprises stocks of listed CPSEs, a CPSE debt ETF will comprise bonds issued by state-owned entities such as railways, ONGC, NHPC, NTPC and other PSUs,” the official said. “This will be one of our first priorities in the coming fiscal,” the official added.

As reported in Business Standard earlier, while Air India will be the marquee sale, the Centre may sell Pawan Hans as well, among other loss-making PSUs. 

In the pipeline of pending IPOs, for which the Centre has already provided approvals, are defence companies such as Hindustan Aeronautics, Garden Reach Shipbuilders, Bharat Dynamics and Mazagon Dockyards, as well as railway companies such as IRCON, RITES, Indian Railway Catering and Tourism Corporation (IRCTC) and Indian Railway Finance Corporation (IRFC).

Preparations are being carried out for a number of OFSs (offer for sale of shares) as well. The plans are for a 10 per cent stake each in NHPC, Power Finance Corporation and SAIL, 15 per cent in NLC, five per cent in Rural Electrification Corporation and three per cent in Indian Oil. 

Buybacks by PSUs are expected to continue next year as well. Cash-rich PSUs will also be buying back shares to contribute to the disinvestment target.

In the kitty

• FY18 divestment Revised Estimate Rs 1 trillion versus Budget Estimate of Rs 725 billion
• FY19 Budget Estimate increased to Rs 800 billion
• Finance Minister says government has approved 14 IPOs, 24 strategic sales proposals for central public sector enterprises (CPSEs)
• Government to privatise Air India by Q3 FY19
• Government to launch further exchange-traded funds (ETFs), including debt ETFs
• Three general insurers to be merged into one entity before public listing