With half of 2020-21 gone, the Centre is now picking up the pace of transactions for the remainder of the year, Tuhin Kanta Pandey, Secretary in the Department of Investment and Public Asset Management (DIPAM) told Moneycontrol in an exclusive interview. These plans include initial public offerings of RailTel, IRFC Ltd and WAPCOS Ltd.
Pandey also said that the government is trying its best to complete the privatisation of Shipping Corporation, Concor Ltd, Bharat Earth Movers Ltd and Central Electronics Ltd before March 31.
Some assets which the Centre also hopes to divest this year include the Nilanchal Ispat Nigam Ltd plant in Odisha, and the Salem and Bhadravathi steel plants of SAIL Ltd, he said.
Besides, the government will make another attempt at selling Pawan Hans and some subsidiaries of Air India, while Bharat Petroleum still remains the brightest and most attractive prospect. Pandey also added that it has been decided to not offer any more tranches of the two equity exchange-traded funds comprising PSU stocks, and that the Centre has very limited ‘bandwidth’ to continue supporting Air India.
Q. The COVID pandemic has led to delays in carrying out divestment transactions, be in the markets or through strategic sales. What are your plans for initial public offerings and offers for sale in the coming months?
A: We have not been shy of using the opportunities in the market, as soon as the markets recovered. In fact, as early as July we came out with a bond ETF through which we raised Rs 10,000 crore for the CPSEs, which has come in handy in terms of not only improving sentiments, but also their capital expenditure plans, because one of the big targets that the Ministry of Finance has been working on and the finance minister is actually personally monitoring is the capex plans of our CPSEs.
On the equity side, we have used the opportunities and gone for offers-for-sale of Hindustan Aeronautics Limited and Bharat Dynamics Ltd. In both we have almost touched the maximum shareholding requirement. In the Indian stock market this year, we account for about 40 percent of all OFSs in terms of value.
Tuhin Kanta Pandey.
Then in the case of Mazagon Docks initial public offering, it's been a huge success even beyond our expectations. We have other IPOs planned. The draft red herring prospectus for the RailTel IPO has been filed with SEBI. We also have the IRFC IPO planned which will be a big one and will be having two components. The company will raise money for their own projects, plus the government piggybacking to sell stake. And some smaller companies also might be in the offing. An IPO of WAPCOS may happen if everything is in order.
Our strategy is that we will not be repeatedly coming on to the market with the same stock, we are going to keep the interest of the long-term investors in mind and avoid the price overhang. Another important policy decision that we have taken is that we will not do further tranches of two equity ETFs. The repeated offerings there have been claimed to be as one of the reasons for the overhang.
Q: So that is your plan in terms of IPO transactions. What about privatisation or ‘strategic sales’? Before the pandemic, you had planned to privatise Bharat Petroleum, Air India, Concor, and Shipping Corp.
A: I think regarding Air India we were proceeding at a very good pace before the pandemic. We had issued a new Expression of Interest, we had worked out certain debt levels, we have a very important condition of net current liabilities to be zero. I think there is very limited bandwidth the government has on continuously supporting Air India, which even in the best of the times pre-COVID was actually making big losses. We have to see whether it is affordable to put the taxpayers' money continuously. Almost about Rs 500 crore per month will be required for Air India to sustain its losses. If there are certain constraints that potential bidders are facing, I think we should remove those constraints and move the transaction ahead. The post-COVID aviation market is also a consideration. We have to work in this new reality.
Bharat Petroleum (BPCL) is promising and will continue to be the main focus of our attention. Both in terms of economy as well as in terms of the receipts to the government, this is likely to be a good transaction and this is back on track. There has been some delay because of the pandemic. The investors sought more time, hence we extended the EOI a few times. I hope there will be no further extensions.
For Concor, the EOI is ready and we are waiting for the railways to finalise their land lease policy, which they will do soon. For Shipping Corp, the EOI is at an advanced stage and I think we should be coming out with that in November.
There are some more strategic sale transactions that we are planning. One is Nilanchal Ispat Nigam Ltd. It is a joint venture of six companies. Four of them are central PSUs and two are Odisha government PSUs. This particular plant has a huge potential in terms of the land, mines and capacity. It could potentially reach 6-7 million tons of capacity, right now it is less than one million tons. We have done some road shows and there is a tremendous amount of interest in this asset. The EOI will be out soon and we hope to conclude it before March 31.
The plans for Central Electronics Ltd have also moved to an advanced stage. We also hope to conclude the sale of two steel plants of SAIL Ltd, before March. These are Salem Steel Plant and VISP Bhadravathi. We will come out with a revised EOI of Pawan Hans, and we will look at some of the subsidiaries of Air India as well, particularly the ground-handling unit.
There is also Bharat Earth Movers Ltd, the EOI is just about ready. We will hive off some non-core land assets before the deal. The plan is to retain a 28 percent stake, but sell a 26 percent stake and transfer the management control.
Q: Out of the total divestment target of Rs 2.1 trillion this year, Rs 90,000 crore was expected to come from the IPO of LIC Ltd and the shedding of the Centre’s stake in IDBI Bank. What is the progress on those?
A: The LIC IPO has got some parts. We have hired Deloitte and SBI Caps as pre-IPO advisors. They are working out all the details that LIC needs to do and prepare itself, as a corporation for the public listing. There will be certain legislative amendments that the Department of Financial Services is working on. We have also to do an Indian embedded value and this is an essential requirement for any IPO particularly for an insurance company. We will be issuing a request for proposal soon to hire an actuarial firm to independently arrive at this embedded value. But in order to do that itself, LIC will have to do certain software changes and they are addressing that issue. So, I would say that there is a lot of preparation involved. But the good thing is that we have chalked out the deadlines and timelines for these processes. We are approaching this particular thing as a project.
IDBI is very much on track. First, we have to obtain an in-principle decision of the cabinet, for which we are getting ready. We are at a very advanced stage and once this decision is out we can move forward. Again it will involve a lot of structuring of the transaction.
Q: How close can you get to the Rs 2.1 lakh crore target?A:
I have not made the guesstimates here. We have actually started working literally only from August. We are using all the opportunities, but are not making any sweeping judgments on anything. Wherever the opportunities exist, we will look at it stock by stock, transaction by transaction and then we try and complete all those transactions. Strategic disinvestment transactions are very time consuming, because they have to pass through a long due diligence process. Therefore, to give some timeline of that kind, because everything has to be done properly, to give you a certain figure and trying to arrive at a figure at this stage, I don't think it is possible for me. The big transactions, if they fructify, then obviously the achievement will be higher. All that we can say at this stage is that whatever disinvestments come on track, we will conclude in a proper manner.