Government achieving disinvestment target doesn't mean that there are takers for PSU equities

The government has recently decided to hold back the sale process of Pawan Hans until the national election is over as only one investor has put in financial bids for buying the helicopter service provider

The disinvestment of exchange-traded funds or ETFs continues to be a face-saver for the government, while stake-sale in individual state-run companies fails to scrape through. The government has recently decided to hold back the sale process of Pawan Hans (PHL) until the national election is over as only one investor has put in financial bids for buying the helicopter service provider. Similarly, the government recently failed to find a buyer for the state-run airline Air India, despite separating a portion of its debts out of the disinvestment programme.

In January last year, 26 per cent stake of Bharat Earth Movers (BEML) was slated to be sold by the central government and management control was to be transferred to a private strategic buyer, but it has been deferred for further due diligence. With an intention to disinvest the control, the centre last year approved restructuring of the balance sheet of loss-making PSU Scooters India, which manufactures three-wheelers under the brand-name 'Vikram'. But the disinvestment again failed to materialise before the election. In February, the government has shelved plans for strategic sale of Steel Authority of India's (SAIL) alloy steels plant in Durgapur, West Bengal. This was after the government's clearance for the outright sale of SAIL's three special steel units -- Salem Steel Plant, Alloy Steels Plant and Visvesvaraya Iron and Steel Plant -- in 2017. Another failed attempt was in April last year when the government invited expression of interests (EoIs) for selling its 100 per cent stake in Bharat Pumps & Compressors.

Against the disinvestment target of Rs 80,000 crore in 2018-19, the receipts exceeded to Rs 85,000 crore. Of this, the receipts from the initial public offering (IPO) is a paltry Rs 1,900 crore. Over Rs 45,000 crore came from ETFs-index funds that are listed and traded on domestic bourses just like stocks- which were introduced in 2017-18 as vehicles for disinvestment of government's shares. So far, the disinvestment offers through the ETF route have become a champion idea, while the government's individual PSU sales often flopped.

When the government offloads minority stakes in individual PSUs, which are in the cyclical business, the response depends heavily on the fortunes of the sector the companies operate. For building the ETF kitty, the government combines a small portion of its stakes from diverse PSUs into a single portfolio and offer to the investors. But the attraction of the ETF portfolio is that the government included a portion of its shares in Larsen and Toubro and ITC also in the kitty. Last year, the third public offer of CPSE ETF mopped up a record Rs 17,000 crore from the market, besides Rs 9,350 crore from another issue of the same ETF. The two issues of Bharat 22 ETF fetched over Rs 18,000 crore.

Besides ETF and IPOs, the government resorted to buybacks and strategic investments for achieving its disinvestment target in the last financial year. But both the buybacks and strategic investments are management decisions. It is the management that decides whether to buy back its shares from the market using the company's cash flow. The government appointed management of the PSUs are left with no options but to go with buyback proposals in helping the government achieve its the disinvestment target--- the government will tender its shares and raise capital through buyback. Strategic investments are largely a deal between the government-controlled companies. For instance, Power Finance Corporation bought a 52.6 per cent stake of the government in Rural Electrification Corporation (REC) for Rs 14,500 crore in the last financial year. In another deal, four ports bought the government's stake in Dredging Corporation for Rs 1,000 crore. In 2017-18, the government had exceeded the disinvestment target of Rs 1 lakh crore, mainly because of deals such as ONGC buying the central government's entire 51 per cent stake in HPCL for Rs 36,915 crore.

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