Already, Covid-induced delays are being noticed in the processes regarding strategic sales of BPCL, IDBI Bank, Air India and also the listing of LIC.
Despite a Budget announcement that privatisation of two public-sector banks (PSBs) and one general insurer will be ‘taken up’ in the current fiscal, the government isn’t reasonably expecting these deals will be through in the year, according to official sources. Proceeds from the sale of the PSBs and the insurer are not built into the budget estimate (BE) of Rs 1.75 lakh crore for disinvestment revenue in the current year, the sources added.
With the uncertainty over the duration and brunt of the pandemic still looming, it is still an open question if some of the big-ticket deals being planned could be completed in the year, but government officials are guardedly optimistic about meeting the target.
Privatisation of PSBs will require amendments or repeal of the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980 (Nationalisation Acts). Privatisation of a state-run general insurer will also require amendments to the General Insurance Business (Nationalisation) Act (GIBNA). The government is yet to introduce these Bills in Parliament and these are not on the business list for the ongoing monsoon session of Parliament.
Reports said Central Bank of India and Indian Overseas Bank have been identified for privatisation, but there hasn’t been any official word yet. The state-run general insurer which could be put on the block will be one among Oriental, United India and National Insurance all of which are unlisted.
While officials are keen 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.
The LIC IPO could include offloading of up to 10% 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.
After the transition of LIC into Companies Act is completed, the IPO preparation may take at least six months before the offer hits the market.
Last week, the department of investment and public asset management (DIPAM) invited proposals for appointment of bankers, registrar, legal adviser and advertising agency to the issue. Of the disinvestment target for FY22, it has budgeted Rs 1 lakh crore from disinvestment of government stake in “public sector financial institutions (read LIC) and banks”.
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. Covid-19 has affected mobility of bidder’s representatives and their plans for site/asset inspections.
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. However, there are labour and provident fund-related issues that need to be addressed, sources said.
DIPAM is now inviting expressions of interest for sale of the government’s 45.48% stake in IDBI Bank worth about Rs 18,300 crore at the current market prices.
So far in the current financial year, the government has mobilised only Rs 7,646 crore or 4.4% of the FY22 disinvestment target.