The Union government was trying to conclude the planned big-ticket disinvestments, including privatisation of fuel retailer-cum-refiner BPCL and listing of insurance behemoth LIC in the current financial year, despite Covid-induced constraints, department of investment and public asset management (Dipam) secretary Tuhin Kanta Pandey said on Wednesday.
Speaking at a virtual conference organised by industry body Ficci, the official said strategic disinvestment will be the primary mode of disinvestment going forward as the government wants to exit businesses and put its limited resources on social and infrastructure development.
While officials are cautiously optimistic that the four big-ticket disinvestments — LIC IPO, BPCL, IDBI Bank and Air India — should materialise in the current year, Covid-induced delays, including in due diligence by bidders have created uncertainties. Even though the shortlisted bidders are now doing due diligence for BPCL and Air India, the process could take longer than anticipated earlier.
“We are striving to conclude the transactions,” Pandey said, adding that the government was not ‘fixated’ on any number as to how much funds will be ultimately raised in FY22 via disinvestment. “The number will be known when transactions are concluded.”
Of the disinvestment target of Rs 1.75 lakh crore for FY22, it has budgeted Rs 1 lakh crore from disinvestment of government stake in “public sector financial institutions” (read LIC) and banks.
LIC initial public offer (IPO) will be the largest IPO in India and one of the large IPOs globally as well, Dipam secretary said, adding that efforts are on to list the insurer in the fourth quarter of FY22.
The LIC IPO could include offloading of up to 10% government stake and fresh equity issuance by the insurer which has lined up large business expansion plans. While the valuation of the insurer — which have played White Knight to the government when there aren’t enough takers of the stakes on offer — will be known closer to the listing, it is believed to be worth Rs 8-11.5 lakh crore, meaning a 10% stake sale could fetch the government around Rs 80,000-1,00,000 crore.
In November 2020, multiple bidders including Vedanta, Apollo Global Management and Think Gas — showed interest for BPCL buyout. The market value of the Centre’s 52.98% stake in BPCL is worth a little over Rs 52,000 crore at the current market prices. The government is selling its entire 100% stake in AI that has been bleeding ever since its amalgamation with Indian Airlines in 2007. Tata Group was among the ‘multiple’ suitors that had put in preliminary bids for the loss-making carrier in December 2020. Dipam will soon invite expressions of interest for sale of the government’s 45.48% stake in IDBI Bank worth about Rs 18,400 crore at the current market prices.
The strategic-sectors policy unveiled in the FY22 Budget will help create a large pipeline of PSUs, including Bharat Heavy Electricals, Steel Authority of India and many mining PSUs as well as banks such as Central Bank of India and Indian Overseas Banks, among others, for privatisation. The privatisations, after gap of 17 years, will boost the Centre’s non-debt receipts meant to be spent on development programmes.
The strategic sector policy entails that the government retain at least one PSU in the four broad sectors while the remaining ones can be privatised or merged or closed. These sectors are: atomic energy, space and defence; transport and telecommunications; power, petroleum, coal and other minerals; banking, insurance and financial services. In the non-strategic sector, all CPSEs will be privatised.
“Now, strategic disinvestment actually is going to be the primary mode,” Pandey said. This will pave way for more space for private sector to grow businesses while it will also spare the government from frequent capital infusion in PSUs such as public sector banks.
Between FY15 and FY20, the Centre had to infuse as much as Rs 3.2 lakh crore to shore up the capital base of the bad loan-saddled PSBs. Still, their market capitalisation has eroded steadily and substantially in recent years even before the Covid-19 pandemic hit them.