Privatisation: Government to test the waters with three cases

The Centre is on a mission to disinvest in its PSUs to generate non-tax revenue proceeds. Cabinet Committee on Economic Affairs has recently approved the sale of government’s entire 63.7 per cent equity in Shipping Corporation of India Ltd. In this article, senior journalist Puja Mehra details the privatisation attempts of the current government.

New Delhi: With an aim to restart privatization, and at the same time, shore up the central government’s non-tax revenue proceeds, the Cabinet Committee on Economic Affairs (CCEA) has approved the strategic disinvestment of five Central Public Sector Enterprises (CPSEs). These are Bharat Petroleum Corporation Ltd (BPCL), Container Corporation of India Ltd, Shipping Corporation of India, Tehri Hydro Power Development Corporation Ltd (THDCIL) and North Eastern Electric Power Corporation Ltd (NEEPCO).

Strategic disinvestment entails change of ownership and transfer of management control. However, not all of the five CPSEs have been approved for privatisation. The approval is for the government’s shareholding in THDCIL and NEEPCO to be acquired by NTPC, which is also a CPSE, and, therefore, these two will remain in the public sector.

But the ownership of the others may pass on to private players depending on the outcome of the bidding process. The government will sell its entire stake of 53.3 per cent in the state-owned refiner BPCL and also pass on management control to the new owner. In effect, the approval is for BPCL to be privatised.

At present, BPCL holds 61.65 per cent equity shareholding in another public sector unit, Numaligarh Refinery Limited (NRL). NRL will not be a part of the proposed privatisation plan. BPCL’s shareholding and the management control of NRL will be transferred to some other CPSE operating in the Oil and Gas Sector.

The CCEA has approved the sale of the government’s entire 63.7 per cent equity in Shipping Corporation of India Ltd. The government presently holds 54.8 per cent of the equity Container Corporation of India Ltd. Of which, the CCEA has approved sale of 30.8 per cent.

BPCL, Shipping Corporation of India Ltd and Container Corporation of India Ltd. are listed companies. As per their closing share prices on Wednesday (20 November 2019), the value of the government stakes approved for divestment are: Rs. 62,892 crore, Rs. 2,019 crore and Rs. 5,722 crore, respectively.

The cumulative proceeds, as per the share prices on Wednesday, are estimated at Rs 70,866 crore. According to Finance Ministry data, in the current financial year so far, the government has already raised Rs 17,364 crore in disinvestment proceeds so far.

THDCIL and NEEPCO are not listed companies. But the proceeds from the sale of government stakes in them to NTPC are likely to enable government to meet its total disinvestment target Rs. 1,05,000 crore for the current financial year.

Only, it remains to be seen how aggressively the private sector will come forward to bid for the strategic ownership and management control of the CPSEs being privatised.

Given the overall liquidity position of the corporate sector and the ongoing economic slowdown, if bidders will finance the acquisitions from their own resources and surpluses. Or, if they will raise debt – from banks, corporate bonds or external commercial borrowings (ECBs).

If the private sector does not demonstrate keen interest, then, going forward, rather than offering more CPSEs for privatisation, the government is likely to take a different route for raising disinvestment proceeds: It will offload its shareholdings in the stock market.

For this, the CCEA gave in-principle approval for enabling reduction of the government’s ownership below 51 per cent in select CPSEs, on a case-to-case basis, and still retain the management control in them.

This will help the government to raise disinvestment proceeds from foreign institutional investors and domestic retail investors.

In effect, with the three cases of BPCL, Shipping Corporation of India Ltd and Container Corporation of India Ltd, the government proposes to test the appetite of the private sector for privatisation. And has, at the same time, drawn up an alternate plan for raising divestment proceeds by way of diluting ownership substantially but without diluting its management control through sales of shares on the stock market.

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