FY21 receipts to be barely a fifth of target; BPCL sale, LIC IPO unlikely to materialise this fiscal
With the Covid-19 pandemic playing spoilsport, FY21 disinvestment revenues will likely be at a five-year low of around Rs 30,000-40,000 crore or 14-19% of the massive annual target of Rs 2.1 lakh crore. However, the government will set disinvestment receipts target at around Rs 2 lakh crore for FY22, as bulk of the deals planned for FY21 such as strategic sale of fuel retailer-cum-refiner BPCL and the initial public offering (IPO) of Life Insurance Corporation are seen materialising next fiscal, along with a clutch of other privatisation deals.
The disinvestment receipts so far this year have been about Rs 17,958 crore or 8.5% of the FY21 target. The government’s residual 26.12% stake sale in Tata Communications (erstwhile Videsh Sanchar Nigam Limited) is expected to fetch around Rs 8,000 crore by February-March.
Taking advantage of the recent uptick in the share market, the Centre may also attempt to execute a few offer for sales (OFS) of minority stakes in CPSEs before the end of the current fiscal. While four CPSEs have already bought back a portion of their shares, four more, including Coal India and MOIL, are expected to buy back shares from the government by March 31, 2021. Still, the overall receipts from this route will be the lowest since FY16 (Rs 23,997 crore).
The government’s plan to sell 52.98% stake in BPCL, which was expected to be completed this fiscal, will likely spill over to next financial year, largely due to procedural delays. The government’s stake in BPCL was worth about Rs 60,000 crore in November 2019, around the time the stake sale proposal was approved by the Union Cabinet. At the current market prices, the stake is worth about Rs 44,500 crore only. However, the actual receipts will depend on valuation and consideration of a premium.
After the expression of interest (EoI) stage, three shortlisted bidders for BPCL will be asked to put financial bids in the second stage in February. Since the shortlisted firms will do their due diligence, field queries and evaluate the assets of company and might visit some of its facilities, the cash flow from the transaction is seen materialising in FY22, said people familiar with the matter.
The IPO of LIC was the second biggest component of the budgeted disinvestment target for this fiscal. The insurer’s IPO won’t materialise in the current financial year owing to tardy progress in preparations. While the valuation of the insurer – which often plays White Knight to the government – will be known closer to the listing. LIC is believed to be worth Rs 8-11.5 lakh crore, meaning a 10% IPO could fetch the government Rs 80,000-110,000 crore.
After the EoI stage, Air India privatisation will enter financial bids stage in March-April and the officials are optimistic of the deal going through in FY22. The bids for AI are likely to be under Rs 20,000 crore. The Centre could get about Rs 3,000 crore cash. Besides BPCL, the Air India deal was also targeted to be concluded by March 31, 2021.
Delay in floating of EoI for the Centre’s 30.8% stake sale in Container Corporation and IDBI Bank has pushed these transactions to the next financial year. After clarity on land leasing policy from the Indian Railways that has to be approved by Cabinet, the EoI for ConCor stake (worth about Rs 7,900 crore at current market prices) will be invited. Similarly, the government is yet to invite bids for its 47.1% stake in IDBI Bank worth about Rs 13,600 crore at the current market prices. The IDBI stake sale could also be pushed to the next financial year.
Meanwhile, the Centre has floated an EoI for the strategic disinvestment of its 63.75% stake in Shipping Corporation of India (SCI) worth about Rs 2,500 crore and 26% stake in BEML worth about Rs 1,000 crore.
The next financial year could prove to be a watershed year of privatisation after a gap of 17 years, given the new strategic sector policy on the anvil and statements made by senior government functionaries in recent weeks that the privatisation process would be “more ambitious”. India’s last outright sale of a CPSE was carried out in FY04.