By Mahesh Singhi
The Modi government came to energy in 2014 on the guarantee of ‘Minimum Government and Maximum Governance’. With this guarantee, the government assured the nation that it had no small business to be in small business. Its key activity was to develop an enabling atmosphere for the smooth operating of corporations and enterprises rather than possessing ownership in them. The have to have to develop higher fiscal space and the imperatives of propelling India on a higher development path has prompted the Centre to aggressively pursue the agenda of PSU privatization and disinvestment.
The outbreak of the covid-19 pandemic has been an eye-opener for emerging economies like India. The nation has realized that it will have to have to implement fiscal expansion measures in a targeted manner. The emphasis will also have to have to be on boosting public spending to make the economy resilient and place it on the path to rapidly recovery. With the aim to raise monetary sources on a enormous scale to expedite its spending plan, Finance Minister Nirmala Sitharaman announced the creation of a National Asset Monetization Pipeline though presenting the Union Budget 2021-22. It laid onus on the monetization of government assets in Central Public Sector Enterprises (CPSEs) to give the government higher fiscal bandwidth. An ambitious target of raising INR 1,75,000 has been set via the divestment of government stake in strategic core and non-core PSU sectors.
With the second wave of covid-19 hitting the nation and a speedy surge in the quantity of pandemic caseloads, investor sentiments are probably to stay subdued in the close to to medium term. The divestment of stakes in strategic assets like Air India could run into rough climate till we witness a substantial improvement in investor mood. However, it is anticipated that uplift in capital markets and a partial stake sale in LIC via an Offer For Sale (OFS) will be capable to compensate for most of the deficit. These are volatile occasions characterized by higher levels of unpredictability and uncertainty. Nevertheless, it would be secure to assume that with powerful liquidity and core financial sectors performing effectively, the government will be capable in a position to time its disinvestment plans effectively and attain practically 80-90 % of its divestment target.
While strategic assets like Air India have undergone various transformative phases more than the last numerous years like its merger with Indian Airlines, the domestic carrier accumulated substantial liabilities. Key amongst them has been its total debt pegged at INR 38,366 crore as per FY20 government information. The debt situation apart from extremely higher employee price (lowest per employee income amongst the peers) could prove to be a hindering issue when the airline is place up on the sale table. The international resurgence in the covid-19 pandemic has led to restrictions on international travel, halting of flights and grounding of international airline fleets. This tends to make the international and Indian civil aviation sector an unattractive investment proposition for investors. It could adversely effect the stake valuation and sale prospects of assets like Air India unless Govt requires substantial hit upfront.
Acquisition of assets in PSUs is not probably to be a seamless expertise for prospective investors offered continued uncertainties like labor troubles and governance structures, greater load of persons price and restricted flexibility in dealing with a substantial employee base. The privatization of a PSU like BSNL does not make for sound financial rationale unless the government intervenes with initiatives like Voluntary Retirement Scheme (VRS) packages for workers apart from other relaxations and monetary help.
In order to make the disinvestment and asset management procedure a resounding results, the government will have to have to take the investor into self-confidence. If the proper worth proposition is not provided to investors, it will not make any sensible sense for them to even participate in PSU bidding processes. To sum it up, there is no such point as ‘correct valuation’. The marketplace commonly does not be concerned about paying the proper cost. However, investors may well get hassled by lengthy-drawn bureaucratic wrangles, red-tapism, indecisive policy frameworks and several bidding rounds which may well discourage them from pursuing PSU stake sale investments.
(Mahesh Singhi is Founder & MD at Singhi Advisors. Views expressed are the author’s personal.)