Govt's disinvestment target likely to fall short by Rs 100-150 billion

Disinvestment target of 2018-19 is likely to fall short of Rs 800-billion

After the highs of the last fiscal year, the disinvestment target for 2018-19 is likely to fall short of the Rs 800-billion Budget Estimates. Official sources said given the market conditions, the best-case scenario could be a shortfall of Rs 100-150 billion. Hence, the disinvestment proceeds could be at most Rs 650-700 billion. 

This compares to the 2017-18 fiscal, when against a budgeted target of Rs 725 billion, the department of investment and public asset management (Dipam) raked in a record Rs 1 trillion. 

So far this year, Dipam has raked in around Rs 100 billion, through a second tranche of the Bharat-22 exchange traded fund and IPOs of rail companies RITES and Ircon and defence PSUs Garden Reach Shipbuilders and MIDHANI. 

The Centre’s disinvestment programme can be divided into four distinct parts — stake sale of listed state-owned entities through offer-for-sales/initial public offerings and buybacks by them, exchange traded funds, mergers and acquisitions among listed PSUs, and strategic sales of companies and their assets. 

The companies for which OFSs are in the pipeline for this year include 10 per cent in Hudco, NBCC, and Bharat Electronics, and possibly 5 per cent in Coal India. The IPOs in pipeline include RVNL, NEEPCO, and Mazagon Dock Shipbuilders. The Centre will have to depend on all marquee state-owned companies such as ONGC, Indian Oil, Coal India, Nalco, HAL, Cochin Shipyard and others to buy back shares. Even then, officials concede, that the combined proceeds from IPOs, OFSs and share buybacks may not cross more than Rs 280-300 billion. 

“The market adage is that the best price of a share is whenever you decide to sell. True as that maybe, in this market, the prices that we will realise is not what we would have ideally hoped for,” said a senior government official. 

ETF key

Dipam has already garnered Rs 83 billion from the second tranche of Bharat 22 ETF this year. Its other exchange-traded-fund, the CPSE ETF, has been recently reconstituted. GAIL, Concor, and Engineers India have been removed from the basket of stocks, which comprise the ETF, and NTPC, NBCC, SJVN, and Nevyeli Lignite have been included. Dipam expects a similar amount from another tranche of the CPSE ETF that it plans to issue this year. Hence, ETFs could garner the exchequer around Rs 70-100 billion this year. 

The Centre has identified five companies, in which it plans to sell all its stake this year. These are HSCC, Engineering Projects India, Pawan Hans, Scooters India, and Central Electronics. Of these, HSCC has been acquired by NBCC, while EPIL is being bought by National Construction Corp. Pawan Hans, Scooters India, and Central Electronics will be sold to non-government entities, according to the Centre’s plan. 

Assets identified 

Dipam has also identified assets of Air India, Pawan Hans, Hindustan Fluorocarbons, Hindustan Newsprint, Bharat Pumps and Compressors, Scooters India, Bridge and Roof Co, Hindustan Prefab, and PDIL. These assets range from office spaces and apartments in prime localities in Mumbai, Navi Mumbai and Delhi-NCR to Rohini Heliport, hangers in airports and factories. 

Even the most optimistic assessments within the finance ministry do not point to the exchequer getting more than Rs 100 billion through the sale of these assets and PSUs. This assessment does not include any of the subsidiaries of Air India, which are up for sale. Government sources said that realistically, only AITASL may possibly be sold this financial year. That leaves mergers and acquisitions, and this is where things get really difficult for the Narendra Modi government. 

Last year, it was ONGC’s blockbuster acquisition of Hindustan Petroleum, which garnered Rs 396 billion on its own for the government, and took DIPAM to a record disinvestment realisation. This year as well, Dipam was hoping for a merger of two big PSUs to get it over the line. That was supposed to be NTPC buying all or part of the government’s stake in NHPC. 

However, power ministry officials have denied any such possibility for now. Dipam officials also concede that their proposal to the power ministry regarding this move has met with cold response. The Centre’s stake in NHPC, according to Tuesday’s closing price, is worth Rs 835 billion. 

M&A still tricky

Another acquisition in the power space on the cards is for NTPC to buy the central government’s stake in SJVN. Federal entities own 90.6 per cent in the company, with the Centre owning 63.8 per cent and the Himachal Pradesh government owning 26.85 per cent. NTPC has been looking to take up stakes in SJVN for two years now, but no response has been received from the power ministry. If the NTPC does buy out the Centre’s entire stake, at current prices the government could garner Rs 69 billion. 

The Centre is still hoping for the larger construction companies — NBCC and National Construction Corp, to buy some of the smaller players, such as NPCC, PDIL, Hindustan Prefabs. Additionally, the Centre is hopeful that the merger of National Insurance, Oriental Insurance and United India Insurance will be completed this year. The IPO of the merged entity, however, will not happen anytime soon. 

“All these mergers aren’t the really big ones like we saw in the case of ONGC-HPCL. The most optimistic assessment tells us that getting even Rs 100 billion through all these mergers and acquisitions will be a tough task,” said another official. 

Any shortfall in disinvestment does not bode well for the Centre’s fiscal maths. Last month, Finance Minister Arun Jaitley had said that the government will meet its fiscal deficit target without cutting capital expenditure. He had said that the Centre will collect direct taxes in excess of budgeted targets. And that the disinvestment target for Rs 800 billion for the year will possibly be exceeded. This becomes imperative for the Centre to meet the fiscal deficit target of 3.3 per cent of the GDP in the face of possible central goods and services tax shortfall of above Rs 1 trillion, and additional spending burden of Rs 460 billion.