PSU disinvestment: Open to closure of MMTC, STC and PEC, says Piyush Goyal

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Published: September 18, 2019 7:17:33 AM

Managements of STC and PEC are being asked to pursue voluntary retirements of staff vigourously. Current projects handled by STC and PEC could be taken over by other PSUs or even MMTC initially if the Cabinet finally endorses the proposal of their closure.

MMTC, STC, PEC, Piyush Goyal, industry news, market news, State Trading Corporation Earlier this year, Syndicate Bank initiated insolvency proceedings against STC for a default of Rs 625.32 crore.

The government is considering the closure or merger of three state-owned trading agencies — State Trading Corporation (STC), MMTC and PEC — as the purpose of their existence has eroded gradually, commerce and industry minister Piyush Goyal said on Tuesday. The news of potential closure spooked investors and shares of STC and MMTC tanked by close to 20% on the BSE on Tuesday, when the Sensex dropped 1.7%. “Slowly the original purpose of these PSUs has come to an end. They are no longer the canalising agencies. It’s not the business of the government to remain in such businesses. It doesn’t make sense to have such a big infrastructure to carry out gold imports, etc. We have started the discussion…all options (closure and merger) are open,” Goyal told reporters on the sidelines of a CII event. As such, these companies haven’t “covered themselves in glory”, he added.

A source told FE that the commerce ministry could recommend the closure of loss-making STC and PEC first. STC may be asked to transfer the titles of its immovable properties, expected to be around Rs 300 crore, to banks and Syndicate Bank — which has initiated the insolvency proceeding against it — may be nudged to withdraw it. The ministry has already asked these two agencies to bolster their cash flow by improving process of recovery from companies that had used their service (such as importing goods, etc) but were yet to pay.

Managements of STC and PEC are being asked to pursue voluntary retirements of staff vigourously. Current projects handled by STC and PEC could be taken over by other PSUs or even MMTC initially if the Cabinet finally endorses the proposal of their closure.

The government holds 90% stake in STC and 89.93% stake in MMTC. PEC isn’t a listed company. STC and PEC are under severe financial stress, which has threatened their operational capabilities, said a senior government official. STC reported a net loss of as much as Rs 881 crore in 2018-19, against a net profit of Rs 38 crore in 2017-18. In the June quarter, STC again reported losses — Rs 94 crore against a meagre profit of about Rs 1.5 crore a year ago.

Earlier this year, Syndicate Bank initiated insolvency proceedings against STC for a default of Rs 625.32 crore. Although MMTC has been recording profits, the government feels such profits can be generated through other means as well and the Centre need not be in such businesses to earn this amount. MMTC posted a net profit of Rs 19.73 crore in the June quarter, against just Rs 9.94 crore a year ago. In 2018-19, its net profit stood at Rs 81.43 crore, compared with Rs 48.84 crore a year ago. PEC’s financial performance wasn’t immediately available.

Shares of STC tumbled 19.61% to close at Rs 107.40 on the BSE on Tuesday, while MMTC’s dropped 16.57% to end at Rs 20.65. STC’s debt-to-equity ratio jumped sharply to 25.56% in FY19 against just 2.22% a year ago, due to “settlement with trade receivables with consequential write-off of bad debts”, as per its annual report for 2018-19. “STC is facing severe liquidity crisis as all the lender banks have reported STC’s account as NPA due to non-payment of interest on the banking limits availed by the company, Therefore, at present, the company has no banking limits, funded or non-funded, available with it,” it said in the annual report.

STC was set up in 1956 as a trading arm to undertake trade with east European countries, while PEC (originally the Project & Equipment Corporation of India) was incorporated as a subsidiary of STC in 1971 to handle its canalised business of export of railway and engineering equipment. This was converted into an independent firm in 1991 and its name was changed to just PEC in 1997. MMTC was set up in 1963 as an independent entity by separating it from STC, primarily to deal in exports of minerals and ores and imports of non-ferrous metals. Currently, it’s the country’s largest gold importer, purchasing gold from overseas for domestic bulk consumers. These companies are under the administrative control of the commerce ministry.

At present, these companies are engaged in imports and exports of various commodities — such as agro commodities, industrial raw material, manufactured goods and bullion — for other businesses as well as the government.

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