An all-time high disinvestment target of R72,500 crore set for FY18 looks difficult to achieve, but disinvestment secretary Neeraj Kumar Gupta is unfazed. The strategy is to keep a rolling plan ready for executing government stake sales in PSUs and private companies at an opportune time (like 2% stake sale in ITC to raise R6,680 crore on Tuesday). Besides the oil sector, the government will also look at other sectors for M&As where there is economic rationale, Gupta tells FE’s Prasanta Sahu in an interview. Edited excerpts:
How did the new policy on managing government investments in PSUs fare in FY17?
The FY17 Budget announcement led to a paradigm shift in the functioning of the department of investment and public asset management (DIPAM). A large number of companies restructured their capital and many opted for buybacks. Declaration of dividend, bonus and right sizing of shares were opted by most PSUs. This has been further focused in the FY18 Budget.
How did the policy of buybacks benefit the companies?
Good financial management of a company gets captured in its share price. To give an example: five CPSEs (NMDC, Coal India, BEL, Nalco and MOIL), which opted for buybacks in FY17, had an option to restructure their capital. Their market capital has gone up by around R50,000 crore after buybacks. This is the wealth that could be created against investment made by the government.
What will be your plan of action next year to achieve the ambitious disinvestment target?
We have to perform against a given target in an unpredictable market environment. It is a challenge. It is the endeavour of the department to take advantage of every opportunity to disinvest in a prudent and efficient manner. This target should not be divided into years and dates. Now, our approach is of keeping a rolling plan ready make transaction at an appropriate time. We have various options of disinvestment.
What is the pipeline for disinvestment next year?
We have approvals for divesting up to 49% in listed PSUs. I can’t specify which companies will be divested or their timing.
Many analysts say the R72,500 crore disinvestment target in FY18 is unachievable?
The Budget has given a very focused direction for further activities which DIPAM should do. The target should be seen in the backdrop of specific announcements: Time-bound listing of a large number of PSUs (there are 112 unlisted profitable PSUs), definite indication of listing of general insurance firms (R11,000 crore) and factoring in such proceeds in disinvestment revenue. Similarly, M&As will create integrated value chains, creating economies of scale to make them more competitive. A new ETF has also been suggested. These are big-ticket desirable reforms. But announcement in the Budget clearly underlines government’s resolve to move forward.
There are 18 PSUs in the oil sector and private holdings in these vary from 30% to 49%. How will you take forward M&As as 75% of shareholders’ approval will be required for that?
Merger in the oil and gas sector is indicative (in the Budget), not exhaustive. Such opportunities may exist in other sectors also. These have to be analysed sectorally and operationally. Based on business operations and financial strength of companies, such M&As with economic rationale are desirable. Needless to say, these transactions will take place in compliance of all regulatory requirements and extant provisions.
What is your plan for the ETF to be launched next year?
The first ETF (largely energy PSU stocks) offer in March 2014 fetched R3,000 crore. It has grown at a CAGR of 14.4%. The fresh fund offer (FFO) of the extant ETF last month was very successful with retail cornering more than 40% of the 6,000 crore raised. The composition of stocks the new ETF to be launched next year will be different. It would consist of government stocks in PSUs as well as in private companies.