FOR NOW, PSU DIVESTMENT STORY LOOKS SAD

The Govt’s story on the divestment target is pretty poor, at least as of now. With 4.5 months to go, the Govt is now seen scurrying around, trying to grasp anything that comes handy, even if it is ‘enemy property.’

The target has been set at Rs.80,000 crore and of this, till date, only 19.05% or Rs.15,247 crore has been met. At this point of time, it looks pretty uphill. Well it had come up with this ambitious target riding piggy back on the propsoed divestment in Air India in current fiscal, which fizzled out like a deflated balloon.

The Govt wants to use the same trick as the one used last year – mergers within PSUs. First it was the three banks – Vijaya Bank and Dena Bank merging into BoB. This was followed last week by announcing its 73.44% stake in Dredging Corporation of India to consortium of 4 ports, namely Vishakhapatnam Port Trust, Paradeep Port Trust, Jawaharlal Nehru Port Trust and Kandla Port Trust.

Also being mooted is the takeover of SJVN, where Govt holds 63.79% stake by NTPC. There is also talk of a possible merger between power sector financing firms Power Finance Corporation (PFC) and REC Limited (formerly Rural Electrification Corporation) where the Govt owns 65.64% and 57.99% respectively. These two deals, if they work out can raise around Rs.21,000 crore.

Last year, it was the mega deal of HPCL and ONGC which helped the Govt over achieve the target and thus hopes to use the same ploy this fiscal too. But this process of M&A to achieve divestment target is a very myopic; the short term benefit is obvious but in the long run, it could impact the profitability of these companies.

And yes, the Govt is looking at buybacks also as an easy route to get to the target. The Boards of NALCO, NLC and Cochin Shipyard have already approved share buybacks collectively worth Rs 2,000 crore. The Govt has further shortlisted a few more like HAL, ONGC, Coal India, NTPC, Nalco, BHEL, and NMDC.

ONGC, which is usually a large contributor to the Govt through its hefty (forced) dividend, has stated categorically that it can either afford a buy back or dividend but not both. In FY18, ONGC had paid Rs.6736 crore through two interim dividends. Now for FY19, the Govt wants ONGC to buy back 3% of its shares, for which it needs Rs.4,826 crore and this will be sourced from its internal accruals. Through these various buybacks it hopes to raise around Rs.12,000 crore.

But remember these buy backs are just an accounting rejig as the promoter remains the same –  the Govt, wherein money is transferred from one government controlled account to another. This is not a new ploy; it’s a habit as in FY18, the Govt got 13 PSUs to buy back stake.

The Govt is also planning to sell part of its holding, around 10% in two recently listed insurance entities – General Insurance Corporation of India (GIC) and the New India Assurance Company Limited (NIACL). From this, it hopes to raise around Rs.14,000 to 15,000 crore.

And yes, there is the plan to sell ‘enemy property’ too. This refers to property left behind by those fleeing to Pakistan and some to Indo-China war. It will also be selling ‘enemy shares’ held in 996 companies of 20,323 shareholders, which are at present under the Custodian of Enemy Property of India (CEPI). Of the 996 companies, 588 are functional companies of which 139 are listed.

There is a Govt report which says that this ‘enemy property’, which includes 11,882 acre of land, belonging to people who migrated to Pakistan after 1965 and 1971 wars. Besides this, there are 149 immovable enemy properties of Chinese nationals, spread over Karnataka, West Bengal, Assam, Meghalaya, Tamil Nadu, Madhya Pradesh, Rajasthan and Delhi. All this is said to be worth around Rs.1.07 lakh crore. But for now, the Govt will go for the easy ones and raise around Rs.3000 crore.

More than buyback the Govt truly needs to work on selling surplus assets like unused or misused public land and minerals, non-strategic PSUs including sick and loss-making public sector companies. The Dhan Vapsi Bill itself recognises that it is wasteful for the govt to own any surplus public asset and provides a roadmap to achieve proper disinvestment and return of public wealth to every citizen. Why can’t this be followed instead of bleeding dry the profitable PSUs?

The Govt is very focused on how Moody’s or S&P or Fitch rates India. And they are in turn focussed on the fiscal deficit. Thus the Govt will do anything to meet the divestment target and get the fiscal deficit in control. And with election looming large, it will go all out. The next few months are indeed going to be very interesting….