'Russia, China Created Oligarchs, Princelings Via Disinvestment'
Rajeev Dubey & Dipak Mondal March 18, 2019
Q. The Modi government's disinvestment is criticised for transferring PSUs from one arm of the government to another, rather than privatise. What is the philosophy behind the process?
Post Russia's failure, one should be looking at the economic impact of opening up these companies, getting them to own by those that can unlock their potential. I guess that should be the bedrock. That is why the name of the Department of Disinvestment was changed to the Department of Investment and Public Asset Management. Getting investments and managing assets of public companies so that their value is unlocked is the bedrock which keeps you clear of ideological questions that can create mental blocks.
On the other side, you will see that many public sector undertakings were freed up to take most operational and very large investment decisions through a board-driven mechanism. Big companies like ONGC, IOCL, the Maharatnas and the Navratnas are fairly independent. The decision of, say, a Navratna to buy a CPSE is outside the fold of the government.
Q. The reason is that people don't see real unlocking of value when a government company is bought by another government company instead of a private company.
Russia created its own set of oligarchs and China created those princelings. India's disinvestment programme has been probably the world's most successful till date. I can prove by numbers - rupee per share obtained is far superior and participation of public has been large.
We are keen on private sector participation. More and more private sector companies are bidding alongside CPSEs. In some cases, we have even barred CPSEs from bidding so that there is greater competition and no monopoly. That argument has become dated if you ask me.
Q. Are they being sold to private companies?
Everybody is allowed to bid. It does not matter if they are sold to a private or a public company. In some cases, to avoid a monopoly, we bar central public sector enterprises, but in other cases, everyone is free to bid. Today, some public companies are also bidding for companies under insolvency. We go on a case-by case basis.
Q. So far, 36 transactions are at work. How many have concluded and how much money has been realised?
These (questions) are a bit unrelated. All these are fairly large number of transactions. Earlier, there used to be six transactions (every year) on an average, but after this government took over, the process was expedited. So, it went into double figures. The number of transactions was 22 in 2016/17, 35 in 2017/18 and 36 this year.
The purpose of disinvestment is to create investment space for more people. There are foreign portfolio investors, domestic institutional investors and retail investors. Disinvestment unlocks value and facilitates integration across the value chain. These efforts are to unlock value and ensure larger participation of investors. The proceeds are essentially the by-product.
Q. How many more closures are you expecting by the end of this fiscal?
We will hit the target of Rs 80,000 crore. The transactions - many of which are innovative - tend to take long, so none of them started in this quarter. Most had started by the third quarter. They take time to fructify due to regulatory issues, time needed to decide when to approach the market, etc.
So, while we are talking, we have finished quite a few - about 18. In some cases, money has flown in, but not recorded by the CCA (Chief Controller of Accounts). As per the CCA statistics, it's only about Rs 36,000 crore (new data says Rs 61,000 crore), but much more has been done and it is just a matter of getting recorded. However, other transactions to be completed this year are also under control. In some cases, we have to approach the market, and considering the condition of the market, we are reasonably sure there won't be any problem.
Therefore, there is nothing we will start this quarter, and so there is no uncertainty about achieving the number. But achieving the number is not what you work towards. You work towards getting more people to participate in these companies.
Q. Is Air India disinvestment deferred for sure?
The word deferred is incorrect because the manner in which it is nuanced. When Air India went for sale, crude oil, and subsequently ATF and foreign exchange rates, all became volatile. This destroyed operational profitability of most airlines and made them less attractive.
When you go back, you have to go with fresh accounts, fresh due diligence. Even if we decide to go to the market today, we will not be able to do so, because we will have to wait for the March ending accounts. It will take at least two months for AGM and other approvals.
I cannot put a date but we are preparing (to go back to the market). It (Air India) is already in the process of selling their land; it has sold considerable land parcels. Businesses and assets that are not core are being disposed of. Expressions of interest have been invited for one of its baggage handling companies (AIATSL). It has many components. So, I will not call the process as deferred, as things are happening. The main company will perhaps go after some time but things are already happening.
Q. How much have they realised from land sale so far? Is this amount going into running the company?
No, asset sale proceeds will be used to retire the debt.
Q. Niti Aayog has a list of possible companies up for sale/disinvestment. Recently, it expanded the list from 24 to 35. What is the status of that list?
They are not all companies. In fact, four are units of SAIL. There are quite a few such cases. The 11, which have come afresh, will have to go through a layered mechanism of structuring.
Packaging these companies, which have multiple activities and arms, for a private sector company to buy, is a time-consuming process. Something done hurriedly creates problems later.
Of the 24 companies (in the previous list), we have achieved closure in two - HSCC and DCIL have been sold. The rest are at various stages of completion.
Q. Do you have a different set of criteria for a profit-making, a non-profit making or an unoperational company?
It's on a case-by-case basis. The larger thing is to create value, get larger participation and change the management by bringing in a set of people who can run the company better.
Q. Are there tighter management processes given to the buyer or does he take a call?
It's his company, why should we interfere at all? Strategic disinvestment is not a process where you get a lot of money because the guy has to invest. And if you add the two, the total value he judges is X+Y. X is what he pays us and Y is what he invests, and there's always a balance between the two. If he gives too much to the govt (X), then Y becomes so small that he will never be able to unlock the value that will come back to us in the form of jobs and taxes. If Y is too large and X is small, the capital is inefficiently employed. So, a judgement has to be taken by the bidding entrepreneur.
Q. One criticism is that some of the buybacks were forced on PSUs, like in the case of HAL, creating financial problems for some companies.
The offerings come from the companies (based on government guidelines). Buybacks are an effective way to transfer surplus cash to shareholders. The proceeds go to all the shareholders and not only the government (the majority shareholder). It's always a board's decision and cannot be a government's decision. There are only government guidelines that trigger boards to announce buybacks. These are all decisions of boards, manned by directors who are fiercely independent.
Q. Can the government, being the largest shareholder, wield some power over the directors?
I don't think so. It is a call of independent directors as they protect the interests of minority shareholders. The company's interest is looked after by the CMD. So, there is a convergence of interest there. There are few people on boards looking after majority shareholders today.
Q. Has there been any point when you felt the disinvestment process was getting slower because of liquidity crunch in the system?
From September to November (2018), there was a massive liquidity crunch. None of my instruments could be placed in the market. We could barely scrape through the IPO of GIC. The whole process was delayed because we could not hit the market.