Bottom-up approach required in fixing divestment target: DIPAM secretary

'If the geopolitical situation stabilises, we'll see whether we can relaunch the (BPCL) transaction', said Tuhin Kanta Pandey

The government is counting on the sale of its minority stake in Hindustan Zinc and the privatisation of Shipping Corporation to meet the divestment target of Rs 65,000 crore for the current fiscal year as the sale of IDBI Bank and Container Corporation of India (Concor) is likely to be completed during the next fiscal year only, says Tuhin Kanta Pandey, secretary, Department of Investment and Public Asset Management (DIPAM). In an interview with Shrimi Choudhary and Arup Roychoudhury, Pandey argues for a bit more “bottom-up” approach rather than a top-line approach for fixing a yearly disinvestment target and then working on it. Edited excerpts:

The government has not reached even half of the Rs 65,000-crore disinvestment target for FY23. Could you give us a road-map for the remaining months of this fiscal year?

A little bit more of a bottom-up approach is needed, rather than a top-line approach for fixing a target as to which transactions can be possibly completed. Had we potentially completed the sale of Bharat Petroleum Corporation (BPCL), we would have exceeded the target, and that’s what we hoped until we faced this situation where we have abandoned the present expression of interest (EoI) and are waiting for a correction to relaunch the transaction.

It is difficult to set a road-map, keeping in mind the situation in the past three years has been changing even in developed nations. Please recall that this type of long-term and consistent planning does not really work in market-oriented deals. Besides, the strategic sector requires a great deal of due diligence, which takes a lot of time. We hope to complete the sale of the residual stake in Hindustan Zinc (at the current market cap, the government's stake in HZL is worth nearly Rs 34,400 crore).

So far, the government has received disinvestment receipts of about Rs 4 trillion since 2014. Going forward, the potential of divestment will be less in some of the key companies, unless we fully privatise them.

Can stake sales in Shipping Corporation (SCI) and Concor happen this fiscal year, as well?

The EoI will come for Concor in a month, but the deal is unlikely to close this year, as we have recently got clarity on the land lease policy. We are beginning the roadshows and subsequently will launch the EoI, and after that, the process will take 9-12 months.

(In the case of) SCI, we could think of closing (the deal) because the demerger is in an advanced stage. The first stage is over and the second-stage meeting of creditors and stakeholders has been held. It goes back to the Ministry of Corporate Affairs (which is tasked with vetting the demerger scheme) where they will do another hearing and pass an order, and then it will go for listing. We are expecting the ministry’s order to be out within a month and it takes about 60 days for listing.

Do you think the current geopolitical situation is impacting the pace of disinvestment deals? For instance, the BPCL sale has been put on hold because of lack of interest among bidders.

Not to the full extent because different sectors are impacted differently, in addition to the current geopolitical situation and global inflationary conditions, which are impacting investor interest. Of course, there is a general impact. For example, the LIC IPO could have happened at the end of last fiscal year, instead of early this fiscal year, but there were no tailwinds there, only headwinds. So, when you have to work against headwinds, obviously, your realisation will be smaller. We were anticipating we will do at least 5 per cent stake sale, and then we found that even that was a much bigger target. I would say that we have to be pragmatic in disinvestment.

BPCL is very specific in nature and it is not merely about the Ukraine crisis. Earlier, there had been energy transition issues, too. In the past two-three years, investments in the oil and gas sector have been very tardy.

What is the road ahead for BPCL?

BPCL is an ongoing concern and its disinvestment is also an ongoing concern. In between, I think they (BPCL) have gone ahead with the merger of Oman (Bharat Oman Refineries); their Numaligarh refinery portion has been already hived off, and they are carrying on their business. If the geopolitical situation stabilises, we will see whether we can relaunch the transaction.

Could you give us a timeline for the IDBI deal?

Now that the EoI is out, we hope to receive bids by December 16. This involves a two-stage process, wherein potential bidders will require to pass the Reserve Bank of India’s ‘fit and proper’ criteria and after that, they will be good to go for financial bids. By March, we will be in a position to invite financial bids. There is work to be done after financial bids too, such as regulatory approvals, vetting of criteria being met, lenders’ approval and open offer, and then only the transaction can be closed. We expect the deal to be completed in the next fiscal year as the process shall at least take nine months.

Will the acquirer of IDBI Bank be required to make an open offer?

We have made it clear that an open offer will be made and there will be no exemption. Open offer exemptions were made in deals where strategic buyers weren’t changing, like in the case of HPCL and ONGC, as both were part of the same group. But in most cases where there are non-government buyers, there is no such exemption given.

In the upcoming Budget, are we expecting a more pragmatic and achievable divestment target?

In government, as far as receipts are concerned, you can actually receive more than budgeted and unlike expenditure, you don’t have to seek Parliamentary approval when the numbers are more than budgeted targets. The thing is you cannot have just one hard number. You have a target but you also have the reality of the markets and geopolitics which just keeps changing.

For example, LIC. We were very clear that we would do it last March, we were preparing everything, and it was going as clockwork, but we have had a major cataclysmic event -- the war in Europe. So these black swan events have been coming one after the other. You had the Covid lockdown, the Delta wave, the Omicron wave, and now the current geopolitical situation. 

Which are the companies from non-strategic sectors that the government is looking to privatise?

There is a PSE policy. The Department of Public Enterprises is leading that along with NITI Aayog and us, in identifying what can be the next wave of candidates for privatisation.

In Pawan Hans, the deal was put on hold as one of the bidders in the winning consortium had an adverse observation in a legal case. What is the status of Pawan Hans' privatisation now?

The issue has gone to the appellate court. And there are some more orders which are expected. There is no issue with respect to our transaction. It is in relation to another IBC deal. They were in the resolution plan, which they agreed to fund and there has been a delay based on an adverse court order. The issue is that there have been adverse observations against one of the consortium partners and we feel that a particular observation hits the terms and conditions. We also want that such a kind of order should not be there against an acquirer. So, if they get some reprieve in the appeal, only then we can go ahead with the Pawan Hans sale.