Tag: Divestment

Government to sell 7% stake in NLC India, issue to open on March 7

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The government is preparing to launch an Offer for Sale (OFS) in NLC India Ltd (NLC) starting on Thursday, March 7. It will divest a total of 7% equity, inclusive of the 2% available under the greenshoe option.

The floor price for the OFS has been set at ₹212 per share. A total of over 69 million shares of the company with a face value of ₹10 each are up for grabs. An additional 27 million shares will be available under the greenshoe option. 

The issue is scheduled to open for institutional investors on Thursday, March 7, with retail investors having the opportunity to participate on Monday, March 11. The market will remain shut on Friday, March 8 on account of Mahashivratri.

The government holds a majority stake of 79.2% in the NLC. With the launch of the OFS tomorrow, the government’s ownership in the company is expected to reduce below the 75% threshold, aligning with regulatory requirements and ensuring compliance with Minimum Public Shareholding (MPS) norms.

ICICI Securities Ltd and DAM Capital Advisors Ltd are the brokers on behalf of the government.

CNBC-TV18 had earlier reported, citing sources, that the government was looking to divest its stake in NLC India.

#JustIn | Govt to sell up to 7% stake via OFS, floor price at ₹212/sh, sources to @Sapna_CNBC pic.twitter.com/EAy9VoWObS

— CNBC-TV18 (@CNBCTV18Live) March 6, 2024

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Budget 2024: ‘Need to look at disinvestments in a holistic way,’ says DIPAM Secretary Tuhin Kanta Pandey

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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DIPAM Secretary Tuhin Kanta Pandey stressed the need to look at disinvestments in a holistic way, including dividends, while also highlighting that the combined market capitalisation of all central public sector enterprises (CPSEs) today is ₹58 lakh crore.

Pandey highlighted that 61-listed CPSEs, 16 public sector enterprises (PSBs) and public sector insurance (PSI) firms have risen by over ₹42 lakh crore in three years, rising from ₹15 lakh crore at the start of 2021.

“This is actually the value unlocking, which has come. In one single year, the value unlocking is of ₹25 lakh crore and I think it’s very important that we also reward our minority shareholders, and look at their needs, capital gains and dividends. At the same time, we keep on looking at our companies and how they perform. It was a very important segment of the economy. I think, if they do well, we have to calibrate the strategy; that’s what we call a new paradigm—to look at one single number and just to do it in a particular year, come what may, that’s not the way we should look at disinvestment or we should look at it holistically to include dividends,” Pandey told a CNBC-TV18 panel on Thursday to discuss Finance Minister Nirmala Sitharaman’s interim budget. The panel also included Finance Secretary TV Somanathan, DEA Secretary Ajay Seth and DFS Secretary Vivek Joshi.

The Centre has set its disinvestment target for financial year 2025 at ₹50,000 crore, Finance Minister Nirmala Sitharaman said in her interim budget presentation today. The FM additionally set the disinvestment target at ₹30,000 crore for the financial year 2024.

The government had earlier pegged the financial year 2024 disinvestment target at ₹51,000 crore. As of date, the government has managed to garner ₹12,504 crore in the financial year 2024 through stake sales in various companies like SJVN and NHPC among others.

Speaking about strategic divestments, Pandey said they are “time-taking,” and while one needs to look at the opportunities in divestment but can’t get fixated on any timeline or number.

“When the privatisation, strategic disinvestment transactions are launched, they take a lot of time, and whichever ones are going on, they are ongoing, and we are keeping them informed. But they are necessarily time-taking, particularly when you have other issues like demergers, non-core assets and so on. So all of them are actually onboard. But, as I said, when we are looking at the overall strategy, it has to be again look at the opportunities but don’t get fixed about one number,” Pandey told CNBC-TV18.

CNBC-TV18 had earlier reported that the timeline for a PSU privatisation is turning out to be at least 12–18 months from the day of submission of the expressions of interest.

The government expects dividends worth ₹48,000 crore from state-run companies in the financial year 2025, as per details in the budget documents. In combination with the Reserve Bank of India and other state-run banks, the government expects total dividends worth ₹1.5 lakh crore. Of this, ₹1.02 lakh crore will come from the RBI and PSU banks. For the financial year 2024, the government has increased the dividend receipts from the Reserve Bank of India and PSU banks to ₹1.04 lakh crore.

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Budget 2024: Government may lay out roadmap for divestment

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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A new roadmap regarding disinvestment may be a part of the full budget in July 2024, sources have told CNBC Awaaz. However, sources say there is little possibility of the government announcing any targets for the disinvestment. The government may adopt a cool stance regarding disinvestment in the budget.

A new roadmap may come for disinvestment:

CNBC Awaaz reported, citing sources, that the government can set a new target for disinvestment during the full budget. The focus may be on completing the existing roadmap for disinvestment. The target is to disinvest ₹51,000 crore in 2023-24. Till now only ₹10,051 crore has been raised from disinvestment.

If a PSU is being privatised, then the government sells more than 51% of its stake in it to the private sector. On the other hand, in the process of disinvestment, the government sells some of its shares, but its ownership rights in the PSU remain intact.

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Understanding disinvestment:

The process of selling the government’s stake in government companies is called disinvestment. All the companies in which the government has a majority stake are called government companies. From time to time the government keeps making decisions to reduce its stake in public undertakings (PSUs). Often in the general budget, the government sets the target of disinvestment during the financial year.

Disinvestment is an important means of raising money for the government. By issuing an offer for sale of its shares in the stock market, the government invites retail and institutional investors to invest in that PSU. Through this process of disinvestment, the government reduces its stake in the concerned company (PSU) by selling its shares and thus gets money which can then be spent on other schemes.

Disinvestment in a PSU can be done either by offering shares directly to big investors or by offering shares through a common process wherein both big and common investors can submit their applications. Many times disinvestment is seen as a means of privatisation of a government company, however, it is not so. Disinvestment refers to the withdrawal of investment by the government to such a level that the ownership of the company is not affected.

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India may settle for only 58% of its initial divestment target

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Indian government’s ambitious divestment plan for the fiscal year 2023-24 is facing significant challenges, with sources indicating a possible downsizing of the Budget targets.

The Finance Ministry had set an initial divestment aim of ₹51,000 crore, but progress has been sluggish, with only slightly over ₹10,000 crore achieved so far, according to sources who spoke to CNBC-TV18.

There is no new privatisation pipeline and government stake in several blue-chip Central Public Sector Enterprises (CPSEs) is already close to 51%, further limiting options on minority stake sales as well.

The government is now reportedly contemplating a more modest divestment target, possibly ranging between ₹25,000 and ₹30,000 crore.

With the general elections on the horizon, there is an expectation that divestment activities might gain momentum after the electoral process.

Divestment refers to the process of selling off government-owned assets, typically in the form of shares or equity, in public sector enterprises. The aim is to reduce the government’s stake in these entities, promoting private ownership and introducing market-driven efficiencies.

The FY24 divestment goal hinged on two big targets—NMDC Steel and IDBI Bank. However, both face hurdles.

NMDC’s Nargarnar Steel Plant privatisation hit a roadblock after the Home Minister’s statement that ownership of the Chattisgarh-based plant will not go into private hands.

In the case of IDBI Bank, RBI’s fit & proper clean chit is awaited on the expressions of interest which came in early 2023. Tuhin Kanta Pandey, the secretary of DIPAM, had also expressed doubts about the completion of the government’s disinvestment in IDBI Bank before the end of the current financial year.

Slow movement on BEML (formerly Bharat Earth Movers Limited) and Shipping Corp of India Ltd (SCI) privatisations, too, has made the government’s FY24 divestment target unachievable, with no clear timelines for the transactions. For almost 18 months, the Centre has been tied down on the BEML and SCI demerger-related process of separating the non-core entities and getting them listed after securing clear land titles from a number of state governments.  

Just at current valuations, the government’s 30.8% stake sale in IDBI Bank would have fetched the government almost ₹22,000 crore. While offloading 26% in BEML would have yielded less than ₹3,500 crore. SCI privatisation would have fetched slightly over ₹4,000 crore at the current market capitalisation.

All three key privatisations put together yield less than ₹30,000 crore in divestment receipts at current market value in a single year, probably driving home the challenge of steep disinvestment targets set by North Block. 

Responding to the challenges faced in achieving divestment targets, Minister of State for Finance, Bhagwat Kishanrao Karad, stated in a written reply to Lok Sabha on December 18, “Disinvestment is an ongoing process, and execution of disinvestment transactions depends upon administrative feasibility, market conditions, domestic and global economic outlook, and investor interest.”

The government’s last achievement of its divestment target was in FY19 when the Department of Investment and Public Asset Management (DIPAM) garnered a substantial amount from its Exchange Traded Funds—CPSE & Bharat 22, surpassing the budgetary target of ₹80,000 crore with a mobilisation of ₹84,972 crore.

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Government to divest 8% equity in IRCON via OFS, sets floor price at ₹154 per share

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The offer for sale (OFS) for up to an 8% government stake in the railway public sector undertaking IRCON will open on Thursday. The floor price for the IRCON OFS  would be ₹154 per equity share, the rail PSU said in a regulatory filing.

Shares of IRCON closed at ₹172, down 0.81% on the NSE. The floor price of ₹154 is at a discount of over 10% from Wednesday’s closing price. So far this year, IRCON stock price has surged 190%.

At the floor price of Rs 154, an 8% stake would fetch the government over ₹1,200 crore. The government currently holds a 73.18% stake in IRCON, which is under the Railways Ministry and in the construction of transportation infrastructure.

The base issue size of the OFS is 4%, or over 3,76,20,629 equity shares, with a green-shoe option to retain an over-subscription of 4%, or 3,76,20,629 shares.

The total issue size, including the green-shoe option, comes to 8%, or over 7,52,41,258 shares.

Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey on Wednesday, “Offer for Sale in IRCON opens tomorrow for non-retail investors. Retail investors can bid on Friday. Govt. would divest 8% equity including Green Shoe option.”

Offer for Sale in IRCON opens tomorrow for Non Retail investors. Retail investors can bid on Friday. Govt. would divest 8% equity including Green Shoe option. pic.twitter.com/AiXTqnxQLj

— Secretary, DIPAM (@SecyDIPAM) December 6, 2023

The government has set a disinvestment target of ₹51,000 crore for FY24. So far, it has realised only ₹8,858 crore through disinvestments in Coal India, Hindustan Aeronautics Ltd, HUDCO, Rail Vikas Nigam, and SJVN (formerly known as Satluj Jal Vidyut Nigam).

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India’s PSU privatisation roadmap stuck in the slow lane — what are the roadblocks?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The government’s strategic divestment plan appears to have slowed down. With lengthy regulatory and due diligence processes to be followed, the timeline for a PSU privatisation is turning out to be at least 12 -18 months from the day of submission of the expressions of interest.

The delay in the privatisation of Bharat Earth Movers Limited (BEML) and Shipping Corporation of India (SCI) is particularly noteworthy due to the demerger of land assets from the core divestment activity. Additionally, the waiting in the IDBI Bank stake sale has become yet another addition to the growing list of delays.

Why the delays?

Even seven months after the government received initial bids for IDBI Bank, the Reserve Bank of India‘s Fit & Proper exercise on the bidders has yet to be completed. Officials explain this is a critical part of whetting of bidders as the government does not want surprises once the financial bids have been called.

After RBI’s Fit & Proper exercise, the qualified bidders will conduct their own due diligence on the bank which again will take a few months. Following this, the government will finalise the share purchase agreement with the qualified bidders and invite financial bids.

What is the Fit & Proper exercise?

The Fit & Proper exercise, as per the RBI’s new regulations for bank acquisitions and holding substantial equity stakes, requires prospective investors to obtain a ‘fit and proper clearance from the RBI before acquiring shares.

These new regulations have been introduced to ensure the credibility of potential stakeholders. Notably, the rules for individuals acting in concert have been made more stringent, and provisions have been set for a minimum lock-in period for strategic shareholders, along with a time limit for share acquisition post-RBI approval.

Under the new norms, if the bank’s board determines that a shareholder is seeking a strategic stake, they are obligated to inform the RBI, even if the shareholding remains below 5 percent.

Due to the cumbersome and time-consuming nature of the process, it is possible the government will be able to invite only the financial bids for the IDBI sale in the current fiscal, with the actual transaction getting pushed to next fiscal.

On June 26, Tuhin Kanta Pandey, Secretary of DIPAM, told CNBC-TV18 that the RBI is currently conducting the ‘Fit & Proper’ test for the IDBI Bank bids. The due diligence on IDBI Bank by the bidders will occur after receiving the ‘Fit & Proper’ nod. Importantly, he mentioned that the government is “proceeding well” on IDBI Bank stake sale.

In the meanwhile, the awaited listing of SCI land assets is still pending. Only upon the completion of this listing exercise will the government proceed to solicit financial bids for the exit of Shipping Corp.

Approvals from the Karnataka government are also awaited for the transfer of title deeds of BEML to BEML land assets, following which the govt will call for financial bids. In both cases, the Centre is hopeful of successfully concluding these transactions within the ongoing fiscal year.

However, with general elections next year, the government is playing it safe in readying a new pipeline of privatisations . There is no approval for new strategic sales so far and it is likely that call will be taken after the 2024 election mandate.

In FY21, there was an ambitious divestment target of Rs 2.10 lakh crore, but the achieved amount was Rs 37,896 crore. For FY22, the target was reduced to 1.75 lakh crore, but the actual amount reached was Rs 13,627 crore. These figures, derived from the Budget, illustrate the challenging nature of divestment efforts.

Moving into FY23, the divestment target was set at Rs 65,000 crore, yet the actual amount attained was Rs 50,000 crore. The decision to lower the target seems to stem from a practical perspective, as the emphasis shifted towards achievable objectives rather than setting overly ambitious goals.

The significance of this lies in the recognition that mere targets do not necessarily equate to successful sales.

The disruptive influence of the pandemic, especially the emergence of the Delta variant, significantly impacted the 2021-22 fiscal.

In fact, the last three years have been marked by challenges stemming from pandemic-related uncertainty, geopolitical tensions, and associated risks, which have affected the government’s plans and prospects for disinvestment transactions.

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India likely to list Shipping Corporation of India Land and Assets by April end

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Indian government expects to list the state-owned Shipping Corporation of India Land and Assets Ltd (SCILAL) by the end of this month,
sources privy to the developments told CNBC-TV18.

After the listing of SCILAL, the government will invite financial bids for SCI, according to multiple sources. The government is selling 63.75 percent of SCI.

Last year, the board of Shipping Corporation of India (SCI) approved an updated demerger scheme for hiving off the non-core assets of SCI to SCILAL, including Shipping House, Mumbai, and MTI (Maritime Training Institute), Powai, to complete the process of demerging all the non-core assets to the new company SCILAL.

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As per the balance sheet of SCI, the value of non-core assets held for demerger as of March 31, 2022, stood at Rs 2,392 crore.

In March 2021, the government received multiple bids for privatisation of the SCI. However, the demerger process got delayed.

The Department of Investment and Public Asset Management (DIPAM) in December 2020, had invited expressions of interest (EoIs) for strategic disinvestment of its entire stake of 63.75 percent in SCI, along with the transfer of management.

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The Union Cabinet, in November 2020, had given in-principle approval for the strategic divestment of SCI.

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AIESL a gold mine, has the potential to grow 5x, says CEO Sharad Agarwal

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Aviation Secretary Rajiv Bansal had told CNBC-TV18 that the reserve price for divestment will be decided closer to the date of inviting bids. Sharad Agarwal, CEO of Air India Engineering Services Limited (AIESL) has made a pitch to potential interested bidders calling AIESL a “gold mine”.

Agarwal said, “AIESL by itself is a gold mine with highly talented and experienced pool of aircraft maintenance engineers and the current group of technicians and engineers will remain in the company even after the sale.”

Speaking to CNBC-TV18, he said AIESL recorded a revenue of over Rs 1,500 crore for last 3 years and has the potential to do 5 times more than the current revenue if properly invested.

AIESL’s extensive infrastructure includes hangars located at seven different locations in India, providing line maintenance at nearly 100 airports in the country, and three engine shops with multiple shop capabilities that need upgrading.

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According to Agarwal, no MRO (Maintenance, Repair, and Overhaul) infrastructure in India matches that of AIESL, making it an attractive prospect for buyers.

However, Agarwal points out that an MRO in Abu Dhabi with a single engine shop has a revenue of over Rs 2,000 crore.

There will be competitive bidding for AIESL, but with its impressive infrastructure and revenue potential, it is undoubtedly a highly sought-after asset.

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AIESL’s current group of technicians and engineers are its biggest assets, and they will remain with the company, ensuring its continued success.

Agarwal also emphasized that there will be no job cuts despite the disinvestment. In fact, AIESL does not have enough people to sustain its current operations. The company is actively recruiting more staff to meet the increasing demand for its services.

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India likely to miss divestment and tax collection target in current fiscal

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Rs 50,000 crore target for divestment receipts in the current financial year is unlikely to be met. With barely 10 days left for the fiscal year to close, the government has to catch up on Rs 19,000 crore worth of divestment revenues. The recent volatility in the market, which continues, may have been one of the factors for the shortfall.

A volatile stock market has added to the government’s woes, creating challenges for the government’s plans to come out with an OFS, although the possibility of an offering is not completely ruled out. Even then, it would be highly unlikely to meet the Rs 19,000 crore gap between current actuals and the target.

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Earlier, the government’s plans for the Hindustan Zince OFS got nixed with the face-off with Vedanta Grp on its purchase of global zinc assets using HZL’s balance sheet. The outcome of this matter is still awaited.

However, DIPAM has been batting for inclusive or ‘DIPAM receipts’ for a while, meaning including the dividend receipts from CPSEs into the overall divestment pool. While from a budget-accounting purpose, it may not be feasible to have 1 combined head for both, DIPAM favours including dividend receipts as part of its revenues – at least being considered in toto instead of counting only the pure disinvestment receipts.

The government has already exceeded the FY23 dividend aim. Against a Rs 43,000 crore target, the government has received over Rs 52,000 crore as dividends from CPSEs, much higher than the disinvestment actuals of Rs 31,106 crore.

This has helped push the total mop up by DIPAM to over Rs 83,000 crore, against a combined disinvestment and dividend aim of Rs 93,000 crore for FY23.

Tax revenue aim: Marginal gap likely

Not just disinvestment, but on the tax revenue front too, the government could face a marginal shortfall.

Sources indicate around 98 percent of the total tax revenue aim for FY23 will be met, leaving the govt short by likely 2 percent of the aim.

On a combined base of direct and indirect tax targets, the 2 percent odd gap could translate into a shortfall of Rs 50,000-60,000 crore for this financial.

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The government has to achieve Rs 16.5 trillion as direct tax revenue and Rs 13.82 trillion as indirect tax revenue. Sources say the targets are somewhat steep given the high base of last year and upward revision in the aim in the revised estimates of this year’s budget.

However, this is a possibility looking at the current trends, sources say. If tax refunds do not pinch in these 10 days, the govt may still be within its overall tax revenue target.

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India could miss FY23 divestment aim of Rs 50,000 crore

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Meeting the FY23 divestment aim of Rs 50,000 crore is likely to be a challenge for the government. With just a month to go for the financial year to close, the divestment kitty currently stands at just over Rs 31,000 crore.

The government had pinned hopes on the Hindustan Zinc Ltd’s (HZL) partial share sale by March-end, to shore up its divestment mop up. As a government official put it, “We had worked very hard on the issue but now there is a spanner in the works.”

The ongoing government opposition to Vedanta using HZL’s balance sheet to buy the groups international zinc assets has scuttled the Centre’s plans for a 10 percent offer for sale (OFS) of HZL. At the current market valuations, it would have garnered Rs 3,800 to 4,000 crore for the government.

However, the Centre has 2-3 other offer for sales in mind, the much talked about Coal India could be one of them, before March end. The March OFS plan doesn’t include ITC —“there is nothing in the near horizon,” an official said.

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Strategic sales slowing down

In terms of the strategic stake sale agenda also, most of it is likely to unfold in the next financial year, although the Centre is trying to invite the expressions of interest (EoI) for CONCOR by March.

“There are some land issues which are currently under discussion with Railways, we are still hopeful of taking approvals for the EoI in March”

Strategic sales of Container Corporation of India Ltd (CONCOR), Bharat Earth Movers Ltd (BEML), Shipping Corporation of India (SCI)  are slated for the next fiscal now.

After the demerger, the BEML land assets listing is still awaited. It is similar for the SCI as well, now that the demerger approval is formal. This process is likely to take a few months, financial bids for both transactions will be called only after that.

The government’s strategic sales have been plagued by land issues, greatly slowing down the pace of disinvestment as investors have been seeking clarity on these non-core assets which are not part of the sale.

The government is also working on selling the Air India subsidiaries, Air India Engineering Services Ltd (AIESL) and Air India Airport Services Ltd (AIASL), with plans to invite EoIs soon.

As of now, IDBI Bank is the likely candidate where the government’s strategic sale could get completed in FY24. Due diligence for IDBI sale is currently on and the government could invite financial bids by April or May.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow