Business India ×
  Magazine:
Editorial

Published on: Oct. 27, 2020, 8:50 a.m.
Maximising value in a smarter manner
  • Illustration: Panju Ganguli

By Business India Editorial

The enthusiastic response evoked to the recent PSUs should be an eye-opener to the government. The more recent one being Mazgaon Shipyard, which got oversubscribed by more than 150 times. Earlier in 2019, the responses to IRTCT and prior to that, the IPOs of RITES and IRCON International, were also overwhelming. In 2020, SBI Card & Payment Services raised upward of Rs10,000 crore and were oversubscribed by 23 times. The point is that there is an insatiable appetite for good PSU issues.

The government should take advantage of the heightened interest during the pandemic to try and rush through more issues to ensure that at least Rs40,000-50,000 crore is raised in the current financial year. 

Government cannot wait, ad infinitum, to get the right price and the right strategic buyers. The stock markets are close to their all-time highs and the government needs to act fast. The problem is that whenever the government declares its intention to privatise companies, the stock market beats down the prices. Take the case of BPCL and HPCL. The privatisation of these two refineries has been mooted since the late prime minister Vajpayee’s time in early 2000.

The impediment of amending the law in the case of BPCL, as was mandated by the Supreme Court, was also done by Narendra Modi’s government in the current term, nearly 12 months ago. A year ago, the share prices were quoting at well above Rs500, with the shares hitting a 52-week high of Rs549 with a total market cap of over Rs1 lakh crore. Currently, the shares are quoted at around Rs333, nearly 40 per cent below their 52-week high. 

There has been a sharp erosion in the asset prices but does the government need to resort to selling assets at bargain basement rates? Putting up a refinery with infrastructure the size of BPCL, for instance, may not be possible without spending at least Rs2,10,000 crore ($30 billion) upward.  BPCL processes crude of more than 31 mtpa through its refineries. BPCL itself holds a majority stake in Bina Refinery, which is another 30 million tonnes. It would be criminal to sell BPCL to a strategic partner at this rate.

What the government can consider is to begin selling BPCL’s stake in some listed and unlisted companies. In Petronet LNG, BPCL’s 12.5 per cent stake is valued at close to Rs4,000 crore. In Indraprastha Gas, another listed company, its 22.5 per cent stake can easily fetch close to Rs6,000 crore. It has stakes in other unlisted companies like in the city gas distribution pipelines, CNG and LNG gas for transport and industrial uses.

If the stake of the five JVs, Sabarmati Gas, MP Gas, Haridwar Gas, Central UP, Goa Gas and Maharashtra Gas is clubbed into one holding company, the investments in the gas distribution business would be valued at multiple times their costs, and the enterprise value of those companies could easily be around Rs20,000 crore.  Dribbling out a small stake in the consolidated gas business and setting up retail stations can be considered.

  • The government should take advantage of the heightened interest during the pandemic to try and rush through more issues to ensure that at least Rs40,000-50,000 crore is raised in the current financial year.

Selling to strategic buyers, is hardly the best way to go. Divestment to the public investors is the preferable way to go. This will realise even better value, provided the government solemnly commits to the fact that, though it may be seeking its stake in tranches, it will, within a reasonable period exit, completely. The nationalised banks are a very good example of how not to sell shares to the public.

The government has, again and again, reaffirmed that it intends to keep control over the nationalised banks. Therefore, the shares of these banks have extremely low value. But had the government made its intention of total exit clear, the shares in these very banks would rock.

One only has to see the example of Mrs Thatcher in the UK. She made it clear that, though her  government was selling in tranches so as not to  flood the market. 

in the very short term, she fully intended to divest completely. This is what allowed the market to price the shares in full measure. And it also helps avoiding the charge that PSU assets are sold cheap to cronies  of the government. 

The reality  is that trying to get what it  considers fair valuations has slowed down the disinvestment process, often by years. In the meantime, there is a slow but steady destruction of value, as is obvious in the case of MTNL and BSNL. The government could use BPCL and, for that matter HPCL, as test cases. It has little to lose, as it is it not getting offers at fair value  from strategic investors in any case.

Corporate Report

How IRM Energy fuels growth, naturally

IRM Energy moves ahead with a clear vision towards transitioning to an energy-oriented company

Cover Feature

Air India 3.0: New wings

Irrespective of whether the final number is 470 or 840, Air India’s massive plane order is the best indication of its confident moves to reclaim its preeminent position in Indian skies

Special Report

How prepared are we to face El Nino

India gears up to tackle the heat wave and El Nino concerns which could spoil the rural party

Corporate Report

CapitaLand expands horizons

Singapore’s CapitaLand is looking to significantly enlarge its portfolio in India

E-MAGAZINE
Air India 3.0-new wings
One step forward two steps backward
Budget 2023
FROM THIS ISSUE

Corporate Report

Technology

Government

Government

Business Notes

Business Notes

Agriculture

The introduction of black pepper as an inter-crop in the sopari and coconut orchards, has enabled farmers to cultivate crops simultaneously

Skill Development

In 2020-21, the programme reached over 112,482 girls in urban and rural locations across six states in India, including 10,000 across Delhi

Collaboration

The event brought together stakeholders and changemakers to participate in a series of conversations on global trends and recent developments

Healthcare

The programme will focus on educating children on oral health and building awareness around the dangers of tobacco use

Airports

Airports set green deadline

Published on March 24, 2023, 12:01 p.m.

Currently Mumbai, Cochin and 25 other airports are using 100 per cent Green Energy

Government and Policy

TN plans to make RE share 50 per cent by 2030

Published on March 24, 2023, 11:44 a.m.

Tamil Nadu is banking high on renewable and green energy

Renewable Energy

Global green investment to triple by 2030: EC

Published on March 24, 2023, 11:22 a.m.

The bloc has also set a goal for carbon capture of 50 million tonnes by 2030

E-vehicles

Ola to raise $300m for expansion

Published on March 24, 2023, 11:03 a.m.

The fundraising would be managed by investment bank Goldman Sachs