Faced with the uphill task of mobilising disinvestment revenue in excess of the target of Rs 80,000 crore in volatile market conditions, the Centre may sell its majority stakes in one or two PSUs to other PSUs, in what could be a repeat of last year’s ONGC-Hindustan Petroleum Corporation deal. The companies the Centre could divest its stakes in include NHPC (which may be sold to NTPC), SJVN (to NTPC) and GAIL India (Indian Oil/Bharat Petroleum). Consolidation of power financing firms PFC and REC is also under consideration, though it is not immediately clear which one will be the acquirer (net worth and market caps of these firms are similar).
The Centre’s 73.64% stake in NHPC is worth about Rs 17,565 crore now while its 65.61% equity in PFC is valued at Rs 13,718 crore and 73.64% in hydropower producer SJVN at Rs 6,904 crore at current market prices. The value of the government’s 53.34% stake in gas marketer and transporter GAIL is about Rs 45,967 crore.
In the case of GAIL, however, the realisation to the government could be substantially lower as the company’s pipeline business would be separated before the sale.
ONGC had bought the Centre’s 51.11% stake in HPCL for Rs 36,915 crore or about 37% of the government’s record Rs 1-lakh-crore disinvestment revenue last year.
In a presentation to Prime Minister Narendra Modi in April, PSU chiefs had proposed the creation of public sector behemoths by consolidating firms based on commonalities of functions to benefit from economies of scale, global competitiveness and access to cheaper capital.
Given the volatile market conditions and few big stocks being available for offer for sale (OFS) of minority stakes, deals similar to ONGC-HPCL are being considered by the government, an official said.
The country’s largest oil retailer IOC as well as BPCL have shown interest in the government’s stake in GAIL (India), the dominant gas marketer.
NTPC, the largest thermal power producer in India, has also ventured into the hydropower generation business and a merger with hydropower firm NHPC would be synergistic. Similarly, an amalgamation of power financing firms PFC and REC could allow leveraging of common resources.
The pipeline of probable deals would depend on the cash position of the acquiring PSUs, which are also undertaking huge capex to expand their businesses organically. NTPC has capex plans of ` 22,300 while that of IOC’s is over `20,000 crore in FY19.
Recently, finance minister Arun Jaitley expressed confidence that the tax collection target for FY19 would be met, if not exceeded, and disinvestment receipts too would be in excess of the target of `80,000 crore. However, the shortfall in goods and services tax collections and the fact that disinvestment receipts so far have been below `10,000 crore are causes for concern.