Govt counts on mergers and IPOs

Target of Rs 72,500 crore for FY17 is highest for any year

The Narendra Modi government might count on a massive consolidation spree among state-owned companies and listing of profit-making firms to meet the disinvestment target of Rs 72,500 crore for 2017-18, the highest for any year.

This could create some global giants as the Centre begins an exercise across sectors to determine which of its companies can be merged.

A day after Finance Minister Arun Jaitley mooted the idea of mergers and acquisitions among public sector undertakings (PSUs), senior government officials said oil and gas, power, chemicals, diversified manufacturing, mining and steel were the sectors in which companies could be merged. “Such decisions will be based on the business and operational profiles of the companies involved. If they can attempt to integrate the whole value chain to reach economies of scale, so as to compete with the global players, it will minimise risk and create value for investors,” said a senior official.

In his Budget speech on Wednesday, Jaitley had said: “Possibilities of such restructuring are visible in the oil and gas sector. We propose to create an integrated public sector oil major which will be able to match the performance of international and domestic private sector oil and gas companies.” 

Such an oil major can be created by merging ONGC, Oil India, GAIL, Bharat Petroleum, IGPL, Hindustan Petroleum, Indian Oil and others. Officials said the aim was to build muscle to take on global behemoths such as ExxonMobil, CNOOC and Royal Dutch Shell.

“The finance minister’s statement on consolidation will start an exercise within the government to see where we can benefit from economies of scale,” said a second official, giving the example of the power sector. “Distribution companies belong to states. But in case of production and transmission companies owned by the Centre, there can be a case for consolidation.”

The Centre might also go for initial public offerings in a number of sectors. Jaitley said in his speech that rail PSUs like IRCTC, IRCON and IRFC would be listed. Sources said subsidiaries of bigger Maharatna PSUs like Coal India will also likely be listed.

Out of Rs 72,500 crore, Rs 46,500 crore was expected to come in from minority stake sales, buybacks, employee offers-for-sale, initial public offerings and through the central public sector enterprises (CPSE) exchange-traded fund route. The Department of Investment and Public Asset Management has launched a second trance worth Rs 6,000 crore of its CPSE ETF. On the cards is another CPSE ETF or further tranches of the existing one. The IPOs of Cochin Shipyard and Hudco and the minority stake sale of a number of companies are pending.

About Rs 15,000 crore is budgeted to come in from strategic sale in PSUs. The Centre has already announced it would offload its stake in Pawan Hans, National Project Construction Corp (NPCC) and Project and Development India (PDI). For the coming year, strategic sales would also include a major chunk of the Rs 60,000-crore worth of stakes that the government holds in Axis Bank, Larsen & Toubro and ITC through the Specified Undertaking of Unit Trust of India (SUUTI).

The remaining Rs 11,000 crore is expected to come from listing of New India Assurance, United India Insurance, Oriental Insurance, National Insurance and General Insurance Corporation of India.