Lambasting the government’s move to allow crossholding in public sector units, Prithvi Haldea, chairman and managing director, Prime Database says the move will not add any strategic value to either of the companies.
The government yesterday allowed Indian Oil Corporation to sell its stake to Oil and Natural Gas Corporation and Oil India Limited for Rs 5000 crore.
Speaking to CNBC-TV18, Haldea says, “These IOC stakes should have been sold to LIC- an unlisted company and then they should have let the policy holders enjoy the benefit. If there was some strategic value to Oil India or ONGC, then it would still make sense but if there is no strategic value then why are you burdening two listed companies with this kind of sale.”
The move was undertaken by the government to tame its fiscal deficit target below 4.8 percent.
Below is the edited transcript of Haldea’s interview to CNBC-TV18.
Q: Because of the crossholdings that has been approved, what do you think the impact could be on the balance sheets of these companies like Oil and Natural Gas Corporation (ONGC), Oil India etc and by and large what is your view on this process that the government is going to use?
A: Divestment in my view and as was agreed principally, is basically to get more retail investors in to deepen and enlarge the capital market. Even if one looks at the Congress manifesto for the last two elections, it clearly states that they wanted every household to own a PSU share.
That is the overall objective and that is what the objective should have been. We keep moaning about lack of retail investors in this market and when an opportunity comes, we do not really engage with it.
I totally disapprove of any such methods of divestment. These are engineers, they are legal, but they have been done primarily to meet the disinvestment target and to bridge the fiscal deficit.
We wasted almost 10 months of the current year doing nothing on divestment front, now with just two and half months left, obviously there is also fiscal deficit hanging in our face so we saw a special dividend recently, now we are seeing this.
The good thing which may happen on the positive side is the Suuti sale of Axis Bank. The government should have pursued the entire Suuti sale of Axis, ITC and Larsen and Toubro (L&T) which would have not only met the fiscal deficit targets but Suuti has no business to hold these shares.
I don't know why only Axis Bank has been selected but never the less combined with Axis Bank and all these things at least the target would be met. In a way I am happy that this Indian Oil Corporation (IOC) sale has been called off, it is really quoting at almost half the price, 52-week high.
Q: Do you think the Hindustan Zinc and Balco sale will happen at all? We get almost like a passing the parcel, every ministry is raising objections. You think it is a done deal now and that sale might happen?
A: There is a proposal that I have been supporting which is basically to get rid of all government holdings and create a national investment corporation which then becomes the owner of all these shares and there is no ministerial interference anymore.
T0here have been many cases where the ministry have found reasons not to push for divestment including IPO because IPO is the first stage where actually a company has to become more transparent, there is public questioning and we have seen a large number of IPOs being stalled by ministries. So, there has to be a way out of this which is make the divestment process neutral from the ministries otherwise you will have a lot of pressure both political, economic and otherwise which will defer these kinds of sale.
Q: You have been watching this entire process for many years, we now hear that the fiscal deficit will be at about 4.6 percent of Gross domestic product (GDP) because there is a big cut in planned expenditure that the government is planning. What is your view on whether this can actually come through and whether eventually we will meet that target?
A: We may meet this target, we are in January and we are closer to a more realistic picture but I want to make a concluding point on this crossholding that there is no strategic value that is being derived from this.
You have converted Oil India and ONGC into investment companies, there is no strategic value to either of the companies by this minority holding of 5 percent or 7 percent or whatever it is.
There is also an issue of corporate governance where both ONGC and Oil India are listed companies and government has literally dictated to these companies that they better buy the stake
These IOC stakes should have been sold to LIC- an unlisted company and then they should have let the policy holders enjoy the benefit. If there was some strategic value to Oil India or ONGC, then it would still make sense but if there is no strategic value then why are you burdening two listed companies with this kind of sale.
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