Disinvestment: Plans afoot to raise Rs 1 lakh crore in FY21

Despite the market conditions not being conducive, the Centre will strive to garner at least Rs 1 lakh crore from disinvestment this year. Yet, this represents a big slippage from the all-time high Budget target of Rs 2.1 lakh crore.
Strategic sales in fuel retailer-refiner BPCL, Container Corporation (ConCor) and IDBI Bank would be completed in the year, an official source said.

Recently, while the Centre has announced its decision to not alter the enhanced borrowing limit of Rs 12 lakh crore when it unveiled the H2 calendar, economic affairs secretary Tarun Bajaj said it factored in potential stimulus requirement and lower-than-expected disinvestment revenues. FE has learnt that a slippage of over Rs 1 lakh crore in disinvestment revenue has been factored in.

While bulk of the shortfall will be due to a likely deferment of the mega IPO of Life Insurance Corporation (a 10% stake sale could have fetched around Rs 80,000 crore), the Air India privatisation won’t yield any revenue to the Centre. While the government hasn’t officially put off the LIC listing, the pace of process clearly indicates the receipts won’t come in early enough to be budgeted for the current year.

With half of the year already over, the Centre is now making a determined effort to sell its 52.98% stake in BPCL, which was worth Rs 39,069 crore at last Friday’s closing price. The process is on despite the BPCL stock losing 35% in value from about Rs 60,000 crore in November 2019, around the time the stake sale proposal was approved by the Union Cabinet.

However, the actual receipts will depend on valuation and consideration of a premium (ONGC had bought the Centre’s stake in HPCL in FY18 at a premium of 14% to the stock’s price). The Centre recently extended the expression of interest submission deadline from potential bidders for BPCL to November 16.

After a failed attempt a few years back, the government will shortly invite bids for its 47.1% stake in IDBI Bank worth about Rs 18,995 crore at Friday’s closing price of the stock on the BSE. LIC is the promoter of the bad loan-laden lender with a 51% stake after it acquired the majority stake in January 2019.

After clarity on land leasing policy from Indian Railways that has to be approved by Cabinet, the EoI for 30.8% stake sale in ConCor will be invited soon. Despite tight race against time, the transaction could be completed by March 31 by running multiple processes simultaneously. The market value of the Centre’s 30.8% stake on offer (out of 54.8%) in ConCor was Rs 6,957 crore on October 16.

Similarly, bids will shortly be invited for the Centre’s 63.75% in Shipping Corporation (Rs 1,547 crore at current market prices) and 54.03% in BEML (Rs 1,353 crore). Among others, strategic sales of Pawan Hans and Central Electronics are also being fast-tracked.

The Centre mobilised a record Rs 1 lakh crore in FY18 and Rs 85,000 crore in FY19 from disinvestment of its stake in various companies including a few PSU-to-PSU acquisitions (ONGC-HPCL in FY18 and PFC-REC in FY19). However, stake sale receipts stood at only Rs 50,300 crore or 23% lower than the FY20RE of Rs 65,000 crore. “So PSU-to-PSU acquisitions can’t also be ruled out in some of the proposed strategic stake sales this fiscal also,” an official said.
So far in the current financial year, the Centre has garnered only Rs 6,389 crore or 3% of this fiscal’s disinvestment target.

Among other disinvestment routes, the Centre could sell about 15% stake in IRCTC via an offer for sale (OFS) to raise about Rs 3,200 crore at current prices. The Centre plans to sell 10% stake in Mishra Dhatu Nigam (MIDHANI) via OFS that could fetch it about Rs 400 crore. The listing of Indian Railway Finance Corporation and RailTel may fetch about Rs 3,000-4,000 crore and Rs 900-1,000 crore, respectively.

A few CPSEs, including Coal India and Kudremukh Iron Ore Company, are expected to buy back shares from the government and other shareholders by March 31, 2021.

Given the fresh uncertainties caused by Covid-19, an inter-ministerial group (IMG) on Air India (including Air India Express) privatisation has favoured allowing bids for the loss-making carrier on the basis of its enterprise value, sans any pre-determined level of ‘sustainable debt’ for the potential bidder to reckon with. Under the current plan, the bidder is to take over the airline’s estimated residual debt of Rs 23,286 crore out of its Rs 60,000 crore debt. So on net basis, there won’t be any cash flow to the Centre from this deal, which will at best reduce the debt and annual loss burden on the exchequer.

With net tax revenue declining by about 30% on year and non-debt capital receipts by 63.5% in April-August, analysts see the Centre’s fiscal deficit more than doubling from the budgeted level of Rs 8 lakh crore for FY21. So maximising non-debt capital receipts will be of immense help for the Centre to keep spending momentum to boot economic activity amid likely 10-15% contraction in real GDP in FY21.