Finance Minister dreams big with CPSEs

From the beginning of its term, the Narendra Modi government has been talking of disinvestment in public sector undertakings and toying with the idea of strategic sale.

This time, however, the government has regurgitated the idea of an integrated public sector ‘oil major’, which will be able to match the performance of international and domestic private sector oil and gas companies. The idea was first mooted by the erstwhile Congress-led UPA government.

Though the government has experienced mixed results in disinvestment, it had not gone in for strategic sale till now.

While presenting his fourth Budget on Wednesday, Finance Minister Arun Jaitley said the government would continue with the disinvestment policy announced in last year’s Budget, but would improve on the timing of listings. “The government will put in place a revised mechanism and procedure to ensure time-bound listing of identified CPSEs on stock exchanges,” Jaitley said.

He proposed that shares of Railway PSEs such as IRCTC, IRFC and IRCON will be listed on the bourses, and a new ETF with diversified CPSE stocks and other government holdings would be launched during the year.

In one of his earlier Budgets, Jaitley had announced a policy for the management of government investment in PSEs had been approved. “We have to leverage the assets of CPSEs for generation of resources for investment in new projects. We will encourage CPSEs to divest individual assets like land, manufacturing units, etc, to release their asset value for making investment in new projects...”

“The NITI Aayog will identify the CPSEs for strategic sale. We will adopt a comprehensive approach for efficient management of government investment in CPSEs by addressing issues such as capital restructuring, dividend, bonus shares, etc. The Department of Disinvestment is being renamed the ‘Department of Investment and Public Asset Management (DIPAM)’.”

While in 2016-17, the government had lowered the revised estimates for disinvestment to ₹45,500 crore, for the next fiscal it targeted ₹72,500 crore.

While critics question the ambitious targets the government is wont to set, given its past record, the Niti Aayog is hopeful that at least one strategic sale will be completed before the current fiscal ends.

“Investors will get more options if the government lists Railway Public Sector Enterprises (PSEs),” said Daljeet S Kohli, Director at IndiaNivesh Securities.

According to Kamlesh Kotak, Director, Equity Research at Asian Markets Securities (AMSEC), the Budget does not provision a conducive environment for these large-ticket investments.

“The market has not got anything disruptive in the form of change in capital gains tax or FPI taxation; GAAR has also been postponed by a year. It will not be an easy task and the valuation will also have to be right for them to meet the targets.”

Jaitley added that the government will encourage strengthening CPSEs through consolidation, mergers and acquisitions. These methods will give them capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders, he added.

While Jaitley could find a way out to achieve his disinvestment target, creating a mammoth oil public sector undertaking could be an even bigger challenge. The reason: each PSU has its own DNA, industry trackers say.

An integrated oil major could do India good, helping the companies protect themselves from oil price shocks, geo-political tensions, and access to cheaper capital boosted by a strong balance-sheet. A strong balance-sheet will help the entity compete with global giants for acquiring equity oil abroad.

Jaitley’s ‘oil merger’ is possible in the form of a holding company with a controlling stake in the large PSUs. The companies would continue to operate as independent entities with the holding company negotiating with similarly-sized foreign players.

Kotak explains that the option of merging the oil PSUs will not happen immediately. The focus of the government would rather focus on listing the railway PSUs.

He said: “If they have been working on the target of listing them for the past three to six months, I think they would be looking at listing them in the first half of the coming financial year.”