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5 Big PSU Privatisation on The Cards in 2020

By Finserv MARKETS - Dec 31,2019
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Disinvestment Track Records & Achievement

India’s economic growth story has had a few setbacks over the last couple of years. From the stressed balance sheet of the banking sector to slowing core sector growth, the rate of GDP growth has fallen from 7% a few years ago to below 5% in the last quarter.

While some suggest that the problem is temporary, it is weighing heavily on the government’s finances. As a result, the government is moving fast on a reform path to allow privatisation of many big Public Sector Units which will not only raise the much-needed funds but also bring in the efficiencies of the private sector and improve the economy.

The privatization agenda is not new but little has been achieved so far considering the hurdles and bureaucratic red tape that comes in the way of major stake sales. Moreover, investor confidence gets hampered when the process is slow and bulky.

Disinvestment Track Records & Achievement

Source: Moneycontrol

To improve this, the Cabinet approved a new process for divestment in October this year which put the Department of Investment and Public Asset Management (DIPAM) in the driver’s seat for all divestment operations.

DIPAM, under the Ministry of Finance, will now be the nodal department for these operations as opposed to NITI Aayog driving the process earlier and then obtaining approvals from various ministries. Now, the process will be more streamlined as the government hopes to shore up Rs 1.05 lakh crore from disinvestment this year to manage its revenues. This becomes even more important as it doled out Rs 1.45 lakh crore of foregone revenues due to its corporate tax cuts earlier this year.

On the anvil for the next year are some pretty major stake sales which are expected to energize some laggard PSUs and give the government funds to continue spending to boost the economy.

These include a sale of government’s full stake of 53.3% in Bharat Petroleum Corporation Limited and a full 100% stake in NEEPCO to NTPC while Tehri Hydro’s 74.2% stake will also go to NTPC and Shipping Corp and Concor will offload the government’s 63.8% and 30.8% stake respectively to a strategic buyer.

Strategic Stake Sale Details
Source: ET

Let’s look at each of these stake sales in a bit more detail:

  1. Bharat Petroleum Corporation Limited: BPCL is one of the most attractive candidates in the list of five PSUs that the government is aiming to privatize over the coming months. The state-owned downstream oil company is the second-largest in India and operates refineries in Kochi, Bina, Numaligarh and Mumbai. On offer is BPCL except for the Numaligarh refinery which the government will carve out of the deal to keep under its control for now. The government is expecting to shore up about Rs 90,000 crore in revenues from the stake sale in BPCL. It owns 53.29% of the company currently which is valued at around Rs 60,000 crore but the buyer will also have to spend an additional Rs 30,000 crore to buy out minority investors. The stake sale is expected to be completed by the end of this financial year. Global oil majors such as Saudi Aramco, Kuwait Petroleum, Exxon Mobil and Total SA have already held talks with the government in this regard.
  1. Shipping Corporation of India: SCI is the national vessel carrier which is currently run and managed by the government of India. It services both national and international lines. The government currently has a 63.8% stake in the entity which it plans to offload to a strategic buyer. The stake sale of SCI has been on the anvil for quite a while. NITI Aayog proposed offloading a 26% stake in the entity earlier but it was reported that the Ministry of Shipping had opposed that move. However, now the ministry is backing the Cabinet approval for divestment of the government’s entire stake in the entity which is expected to bring in close to Rs 2,030 crore for the exchequer.
  1. Container Corporation of India (Concor): The government is aiming to offload 30.8% stake and management control in Concor to a strategic buyer before March 2020. Even after this offloading, the government will have about 24% stake left in the Navratna PSU which handles inland cargo under the Ministry of Railways. The expected proceeds from this stake sale are set to be around Rs 5,944 crore for the government.
  1. North Eastern Electric Power Corporation (NEEPCO): The government is planning to further consolidate the electricity sector in the country by selling off the entire NEEPCO stake to NTPC which is set to take over the company with a 100% stake ownership. NEEPCO has 60% of total installed power capacity in the NorthEast region of the country and its net worth is more than Rs 6,000 crores as on March 2019.
  1. Tehri Hydro Development Corporation Limited: THDC India Limited is a jointly owned company with stakes belonging to both the Government of India and the Government of Uttar Pradesh. The company operates electricity generation projects at Tehri Dam and Koteshwar Dam, among other projects. It has also ventured in thermal power generation with 1320 MW of capacity coming up in Uttar Pradesh.

The government is selling its entire 74.2% stake in the company to NTPC which is expected to add another Rs 2,720 crore to the public exchequer’s kitty.

With these potential stake sales and disinvestment, the government is hoping to cede control in some PSUs while also gathering funds to prime up the economy through public spending. If all goes well, India’s growth story is headed for a glorious path.

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