Six firms, including Ernst & Young LLP and Deloitte Touche Tohmatsu, are in the race for advising the Finance Ministry on two merger and acquisition (M&A) deals. The four other entities which have bid for advising on the deals are ICICI Securities, IDBI Capital Market and Securities, SBI Capital Markets and RBSA Capital Advisor LLP. These firms would be making their presentation before the Department of Investment and Public Asset Management on November 26, as per a notice on the DIPAM website.
DIPAM had last month floated a Request for Proposal (RFP) to engage one advisor from consulting firms/ investment bankers/ merchant bankers for assisting it in the process of two M&As in the energy sector. The selected advisor would assist the government on modalities of disinvestment and the timing; and prepare business valuation of companies, as well as suggest measures to fetch optimum value. The names of the CPSEs selected for M&A would be decided later.
Once the proposal comes from the administrative ministry, it would go to the Core Group of Secretaries on Disinvestment (CGD) and then to the Cabinet, an official explained. With over four months left for the fiscal to end, DIPAM is fast-tracking the process to achieve the Rs 80,000 crore disinvestment target. So far, the government has mopped up over Rs 15,200 crore from PSU stake sale through IPOs, OFS and ETF. According to officials, the government is looking to sell its 65.61 per cent stake in state-owned Power Finance Corporation (PFC) to Rural Electrification Corporation (REC), which could fetch the exchequer about Rs 13,000 crore.
At the end of 2017-18 financial year, the total resources of REC stood at over Rs 2.46 lakh crore, of which ‘Reserves and Surplus’ stood at Rs Rs 33,515.59 crore. The net worth of the company stood at Rs 35,490 crore and ‘cash and bank balance’ was at Rs 1,773 crore at the end of March 2018.
The REC-PFC deal is being considered on the lines of the acquisition of government’s entire 51.11 per cent stake in oil refiner HPCL by state-owned ONGC in 2017-18. The government got Rs 36,915 crore from the stake sale. Finance Minister Arun Jaitley had in Budget 2017-18 said there are opportunities to strengthen CPSEs through consolidation, mergers and acquisitions. “By these methods, CPSEs can be integrated across the value chain of an industry. It will give them capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders,” he had said.