Shares of MMTC Ltd and State Trading Corp Ltd surged after CNBC-TV18 reported that the government might shut down these companies.
MMTC rallied more than 7 percent, and STC over 15 percent, before paring some of the gains. These stocks have been strong performers this year, with MMTC surging more than 130 percent and STC by over 80 percent so far this year.
Union Commerce Minister Piyush Goyal is slated to lead a high-level meeting on October 23 to explore the closure of three state-run entities, MMTC, STC and PEC, according to the CNBC-TV18 report. The government holds around 90 percent stake in MMTC and STC, while details of PEC are not available publicly.
Why the shutdown?
Analysts suggest that the core purpose of these public sector units has become obsolete. They argue that it's not the government's role to engage in such businesses.
Analysts further suggest that once the necessary internal approvals and due diligence are completed, these companies will likely be wound up. If they've made equity investments, they may be sold as going concerns, subject to joint venture agreements.
For listed entities, the Sebi process and winding-up requirements will apply. STC and MMTC may need to be taken out of NCLT through an agreement with its lenders. Other options like demerger and selective asset sales might be complex, but the government hasn't ruled them out until the final processes are determined.
The government had earlier assessed the need for these canalising agencies in the Department of Commerce and found those unnecessary. PEC, STC, and MMTC used to oversee various imports and exports. Notably, MMTC had its stockbroker licence cancelled by Sebi in August 2023 for involvement in illegal paired contracts related to National Spot Exchange Ltd (NSEL).
According to several news reports, the government is reviewing investments made by central public sector enterprises (CPSEs) in state-level entities to prevent them from getting involved in unrelated or loss-making ventures. There are around 500 state-level public enterprises (SLPEs), with around 200 of them facing financial losses.
Zero revenue
In terms of earnings, STC reported zero revenue in FY22 and FY23 due to suspended business activities since November 2020, as directed by the ministry. However, in FY23, it reported a net profit of Rs 32.89 crore, a turnaround from a net loss of Rs 93.97 crore in FY22. This was primarily due to increased rental income and reduced operating costs, including a reduction in manpower. Before FY23, the company had experienced losses from FY14 to FY22. As of March 31, 2023, STC had a negative net worth of Rs 1,028.67 crore, and accumulated losses of Rs 1,156.04 crore.
According to the annual report of FY23, STC is working with lender banks to finalise a One Time Settlement (OTS) to settle their outstanding dues, as per the decision made during a meeting. STC has paid Rs 1,100 crore to the lender banks, and identified immovable properties worth around Rs300 crore are to be transferred to the banks as part of the OTS.
However, there have been deviations from the original terms of the OTS agreed upon during the 2019 meeting, leading to delays in concluding the OTS. A case filed by a consortium of lender banks is ongoing in the Debt Recovery Tribunal (DRT). The last hearing in DRT was on July 26, 2023. STC continues to inform its Board and the Administrative Ministry about the matter for further directions, annual report said.
MMTC reported a revenue of Rs 3,528 crore in FY23, down 70 percent from a year ago. Net profit for the year stood at Rs 1,072 crore, compared to a loss of Rs 270 crore a year ago.
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