The DIPAM Secretary said that if the government tries to sell too fast at a discount, the existing shareholders may feel they are short changed
In the Union Budget 2023-24 presented on Wednesday, the central government pegged Rs 51,000 crore in disinvestment revenue for the upcoming fiscal. For the ongoing financial year, it scaled its target to Rs 50,000 crore from the earlier budgeted estimate of Rs 65,000 crore. The ongoing financial year would be the fourth consecutive year in which that the government has been unable to achieve budgeted disinvestment target.
The government has kept a realistic disinvestment target this time, according to DIPAM Secretary Tuhin Kanta Pandey. In an interaction with Outlook Business, he expanded on the challenges faced by the government with regard to disinvestment in the past few years. Edited excerpts:
Would you say this year’s divestment target is modest?
I wouldn’t say it’s modest, I think it’s practical. Modest would imply that there’s something more that could have been done. We do disinvestment in two ways. One is strategic disinvestment and the other is minority stake sale. Both have different kinds of challenges. Strategic disinvestment is a very time-intensive process as it involves management control change and that requires competitive bidding, price process, due diligence, regulatory processes. Minority stake sale on the other hand involves what’s the bandwidth available to you because below 51 per cent, it will only be strategic disinvestment.
State of markets is another important factor in the disinvestment process. Markets work differently for different enterprises as well as for different sectors also.
If we try to sell too fast at a discount, the existing shareholders may feel they are short changed. Calibration of supply of stocks is another issue in the process. This is the complexity in which we are operating. Now we have got a better handle of that experience. Last two three years we faced those challenges. Now, we are giving an estimate as per what we can handle. If you look at it, the number is pretty big. It looks small because of the large numbers that were being kept. This kind of a target on a sustained basis is also challenging.
Is the revenue from dividend a reason for slow movement on divestment?
It’s not divestment that’s my concern. My existing companies must do well, and they must create value, must make profits, and they must also give dividend to us as well as to other shareholders. Dividend is an important source of revenue also. Given the fact that we have reduced equity, our potential for dividend goes down. But we are still able to maintain the dividend and sometimes exceed the budget target.
We have to handle both. So, a higher disinvestment also means in future you’ll have lower dividend. I can actually wait and get the dividend from those companies. I am not losing out completely in the sense that I have not been able to sell.
Do you think the perception of the public sector and how it works, adversely impacts the buying decision of a prospective buyer?
Bidder’s interest is an important issue in the privatisation process. Bidders weigh in whether the people can be congenially tuned to a different way of working. It varies from enterprise to enterprise but that’s a risk they have to take which they’ll take on board before bidding.
It’s not that if we are wanting to sell something, there’ll be a beeline of people. There may not be. They might say if I want to invest capital, let me invest it directly in a greenfield and have my own way of working. But they can be interested in some brownfield, either from public sector or from private sector as well.
Our process is time-intensive because we have to do it through a bidding process and not bilaterally. There can be court cases, we can’t stop anyone from going to the court because these are public sector assets. So also have to convince courts that our policies are right and fair.
You talked about market sentiment being an important factor in the whole process. Are you looking at a timeline by which you expect it to get better?
In many cases market sentiment exists for divestment. For example, LIC IPO, despite so many headwinds, it went through. It varies from company to company as well as time to time.
Minority stake sale is a different cup of tea and is influenced by market very quickly. On the other hand, strategic sale is more long-term.
Bank privatisation was a big theme for the government. What is the status on that?
Except IDBI Bank, at the moment we are not looking at anything else. We have received couple of EOIs (expression of interests) for IDBI. We will see how to go about that.