Marketing assets

Why Modi’s government’s modest Rs 65,000 crore divestment target for FY23 looks like a tall order

New Delhi: Union Finance Minister Nirmala Sitharaman dropped the subject of divestment from her last budget speech, but in fact there was not much to say. Budget documents show that the government has set its divestment target for the financial year 2022-23 at a modest Rs 65,000 crore – a steep reduction from last year’s target of Rs 1.75 lakh crore.

With the initial public offering (IPO) of Life Insurance Corporation (LIC) which will seek the government Rs 20,560 crorethe total divestment proceeds stand at Rs 23,575 crore, according to the website of the Department of Investment and Public Assets Management (DIPAM), a wing of the Union Ministry of Finance.

This means that more than a third of this year’s divestment target has already been met.

However, the The jury is still out on whether the government will be able to meet the rest of its modest target, given legal or procedural delays surrounding high-value companies listed for divestment this year, including Central Electronics, Pawan Hans, Shipping Corporation of India (SCI), Bharat Earth Movers (BEML), Container Corporation of India (CONCOR) and Bharat Petroleum Corporation Ltd (BPCL).

“As it goes on, it seems difficult that any privatization of a UAP can take place in the first half of the current financial year. If so, any potential stake sale could only see the light of day in the second half of the year,” said Siddharth Kothari, economist at Sunidhi Securities.

Senior finance ministry officials, meanwhile, say the focus will now be on the sale of IDBI Bank, where the government holds 45.48% of the capital and LIC 49.24%. Together, their stake is worth Rs 40,000 crore.

ThePrint examines all of these public companies and how the issues related to them seem to have stifled the government’s divestment pipeline.


Read also : Rs 13,561 crore – what Modi government got from divestment in 2021-22, just 8% of original target


BPCL & CONCOR

With government participation in Bharat Petroleum Corporation Ltd. valued at Rs 41,000 crore, it is by far the largest among the state-owned companies listed for divestment this year.

As Bharat Petroleum’s privatization process – which began in 2020 – reached its final stage, there was only one bidder left in the race. “The process will have to be restarted because at the time of the financial offers, there were no competitive offers,” said a DIPAM official.

Like reported earlier by ThePrint, a combination of factors has driven investors away from one of India’s largest oil marketing companies. Among these factors are the fear that oil marketing companies do not enjoy absolute freedom in terms of fuel prices and the global push towards renewable energy.

The privatization of the Container Corporation of India, on the other hand, has stalled for some years. This is largely due to the government’s delay in finalizing a policy for the use of CONCOR-owned land around stations.

According to reports, land license fees could be reduced from 6% to 3.5% to facilitate CONCOR’s strategic divestment, which could earn the government an additional 8,000 rupees. But the process itself can take time.

SCI & BEML

The government intends to dilute its entire 64% stake in the Shipping Corporation of India for Rs 4,000 crore, for which it is currently undertaking a spin-off of the SCI’s real estate assets in Maharashtra – a process that could take at least four to six months, according to the DIPAM official.

The state government of Maharashtra, for example, had expressed reservations about transferring one of these assets to a private player, citing security concerns since the property – Shipping House – is located opposite the minister’s office. Chief Uddhav Thackeray.

In the case of Bharat Earth Movers Ltd, a separate entity – BEML Land Assets – has been spun off from it, which includes the non-core assets of BEML. The split entity will need approvals from the state governments of Karnataka and West Bengal for the transfer of some of these assets.

The Indian government has offered to dilute its 26% stake in BEML for Rs 1,400 crore, along with the transfer of management control.

According to sources within DIPAM, the split process risks delaying the strategic divestment of SCI and BEML.

Central electronics

Last November, the government announced its decision to sell its entire stake in solar-powered maker Central Electronics, which falls under the Department of Scientific and Industrial Research, to Nandal Finance and Leasing — a financial services provider — for a sum of Rs 210 crore.

However, the divestment was put on hold after the Central Electronics Employees Union petitioned the Delhi High Court to challenge the valuation at which the company was sold. One of the main claims made by the union was that the successful bidder had no previous experience in the manufacture of solar products.

With the case now before the courts, the government has also formed an inter-ministerial group to examine the union’s concerns.

pawan hans

Helicopter manufacturer and aeromobility service provider Pawan Hans, which was sold to Star9 Mobility Private Ltd in April this year for Rs 211 crore after three failed privatization attempts, is also being divested this year.

Star9 Mobility Private Ltd is a consortium of three companies, namely Big Charter Private Limited, Maharaja Aviation Private Limited and Almas Global Opportunity Fund, which is the finance arm of the consortium.

The National Company Law Tribunal (NCLT) had arrested Almas Global in April for failing to meet its obligations despite obtaining a bid for EMC Ltd, a company subject to insolvency proceedings.

“There are a lot of single company issues because they are big companies. The NCLT order has reached us and we are studying it. We will soon make a final decision on the successful bidder’s award letter,” a government official told ThePrint on condition of anonymity.

According to the rules of privatization, a company that does not respect its financial commitments exposes itself to disqualification.

“Almas Global remains strongly committed to acquiring EMC Ltd in accordance with the resolution plan approved by NCLT, even in such market uncertainties and this is the reason why the Fund has not exercised the trigger clause of the force majeure clause, which is included in the approved resolution plan, as this clause only applies to such situations,” Almas Global said in a statement.

Media reports Monday pointed out that the government had decided to suspend the privatization of Pawan Hans.

Focus now on the sale of IDBI Bank, the reforms

DIPAM officials ThePrint spoke to said the department’s approach now would be not just to sell the government’s stake in the companies so that it gets the desired revenue, but also to introduce reforms. These, it is hoped, will serve the interests of companies, shareholders and long-term investors.

“If you see what we’ve done with LIC, it now has a professionally managed board, there’s a new CFO, and the company has moved to the latest software to better identify products and strategies with l ‘evolution of policies,’ said the DIPAM official quoted earlier.

A similar attempt will also be made when selling the stake in IDBI Bank, the official added.

“Our focus now is to bring out the Expression of Interest (EOI) for IDBI Bank. The roadshows for the stake sale are underway. This too would be a big deal for privatization as it has not happened yet for a bank,” the official told ThePrint.

The government is also in talks with LIC to discuss the amount of stake the two entities will offload in the strategic divestiture of IDBI Bank to cede management control, the official said, adding that DIPAM is organizing roadshows. pre-EoI to assess investors. interest.

(Editing by Amrtansh Arora)


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