The government is unlikely to complete the strategic sale of Bharat Petroleum Corporation (BPCL), Container Corporation of India (Concor), and Air India by March-end, said a senior government official.
“The government has to respond to what the potential bidders ask for. Sometimes, they seek time to examine financial statements. Sometimes, they want to do physical due diligence,” said the official.
The likely delay in divestment plans comes when the government’s fiscal deficit has touched 115 per cent of the FY20 Budget estimate by November. Besides, revenue from other sources such as taxes is also likely to fall short of the target. The government may miss the tax target of Rs 24.6 trillion by at least Rs 2 trillion on account of the corporation tax rate cut, lacklustre GST collections, and the economic slowdown. As much as 42 per cent of the revenue collections (excluding cess and surcharge) will go to states.
The government had set a disinvestment target of Rs 1.05 trillion for 2019-20. However, in FY20 so far, the government has managed to raise Rs 17,364 crore through disinvestment; 84 per cent of its disinvestment target is yet to be realised.
The government has been trying to divest its entire stake of 53.3 per cent in BPCL to a strategic buyer, which can at least fetch Rs 56,359 crore based on Thursday’s closing price.
Proceeds from these transactions can fetch the government Rs 67,204 crore or even higher, depending on the premium the government can get on these assets from strategic bidders.
If Air India’s 100 per cent stake sale is also added to the equation, then the proceeds may jump to over Rs 80,000 crore. According to a Credit Suisse note, the equity value of Air India in the best-case scenario can be estimated at Rs 18,000 crore. However, investment bankers say the airline's final value will depend on the efficiencies that the strategic bidder may unlock and the overall structure of the deal. In 2018-19, the company incurred a net loss of Rs 8,556 crore (provisional estimate).
The company has over Rs 30,000 crore of debt burden. So far in the current fiscal year, the government has heavily relied on the exchange-traded funds to divest its stake. It has raised Rs 10,000 crore from the fifth follow-on offer of CPSE ETF during the fiscal year and Rs 4,368 crore from the second follow-on offer of Bharat 22 ETF.
In November, the government had approved strategic stake sales in BPCL and Shipping Corporation of India (SCI), along with a 31 per cent stake sale in Concorp.
The government's 64 per cent SCI stake — that is proposed for strategic sale — is valued at Rs 1,772 crore at the close of the markets on Thursday.