Asset monetization is focused on recycling core assets, says DIPAM Secy Tuhin Kanta Pandey
The FY23 divestment target has been lowered significantly. Are you conservative or is there a change in strategy?
The objectives were largely set from a tax point of view. For tax requirements, you had to set higher divestment figures. We have reviewed this strategy in detail. Divestment cannot simply be a resource-gathering exercise. Divestment and privatization must be a policy that will stimulate employment and growth.
There are two types of divestments. First, when we transfer management and control or privatization. Privatization is a time-consuming exercise because it involves public goods. The process followed involves multiple stakeholders. This is a bidding process. There is also the issue of litigation.
The second type is the sale of minority shares. The dilution bandwidth is shrinking more and more as over time we have achieved ₹3.5 crore lakh more dilution in the markets and many large caps are now close to the 51% threshold. There is limited scope here unless we privatize. But many of them will be kept within the framework of the bare minimum of presence because they come under strategic sectors.
The actual number of privatizations may increase in the future because we now have better institutional capacity. We are trying to reduce the time needed, but it is still a long process.
Given these two aspects and the fact that we see privatization as a reform, as a means of increasing productivity and better creating jobs, we have rationalized the objective.
Litigation seems to have become a huge challenge in privatization…
In each privatization, we are confronted with disputes. Although, in the Balco judgment, the Supreme Court made it clear that the government has the right to divest from the policy and that a judicial review of the policy is not necessary. Second, they also looked at how the divestment process was conducted. They said it was a fair process that followed established guidelines. It was a judgment of three judges and it is indeed the law of the land which was also invoked in the BPCL case by the Bombay High Court. The judiciary has clarified the issue, but these challenges continue to arise.
There was a legal impediment to the sale of residual stakes in some already privatized companies which has been resolved…
In the case of the residual government stake in Hindustan Zinc, there was a court case. The court allowed us to go ahead with the stake sale. We are now going to the market. In the case of Videsh Sanchar Nigam Ltd, which later became Tata Communication, we pulled out completely. In Paradeep Phosphates, we plan to exit through the IPO route.
What about LIC’s proposed IPO?
We said that the registration will take place this year. We will file a draft Red Herring prospectus next week. Clearance from Indian Insurance Regulatory and Development Authority is expected at all times. This will bring a lot of depth to the market. It will also bring new investors into the market.
Another big privatization on the cards has been BPCL…
We do not have an adequate response from some bidders on the readiness for the financial tender. Some are no doubt overtaken by the challenges of the energy transition. These are large transactions and consortium decisions. So it didn’t move with the speed we expected. We try to reach bidders through transaction advisors to persuade them. We have financial offers for Pawan Hans. We try to prepare people for the financial offers for Shipping Corporation and BEML.
What is the strategic sales pipeline for FY22?
There is IDBI Bank, where we have to make an expression of interest. We got clarification from RBI on this and launched virtual roadshows. We have HLL Life Care, where we have issued an Expression of Interest. We have PDIL. We have Nagarnar Steel Plant, where the split is ongoing and the Expression of Interest will be released soon.
How has asset monetization progressed?
The broader asset monetization plan focuses on core asset recycling and is tied to the investment cycle. The money does not come back to the government. It stays with the business and the resources can be used for capital expenditures. Around ₹26,000 crore of asset monetization has already been done.