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Thursday, February 25, 2021

DIPAM Secretary: ‘As transactions get more intricate, need to do a lot of capacity building’

He said the department is gearing up to meet the privatisation roadmap outlined in the Budget.

Written by Pranav Mukul , Sunny Verma | New Delhi |
February 5, 2021 3:02:36 am
We need to do a lot of capacity building — both the asset monetisation side and on the strategic disinvestment side.

Pursuing the ambitious strategic sales proposals and asset monetisation programme announced in the budget will require a lot of capacity building at the Department of Investment and Public Asset Management (DIPAM) as transactions will get complex going forward, said DIPAM Secretary Tuhin Kanta Pandey. In an interview with Pranav Mukul and Sunny Verma, he said the department is gearing up to meet the privatisation roadmap outlined in the budget. Excerpts:

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Does the new disinvestment policy call for a change in DIPAM’s functioning?

We need to do a lot of capacity building both the asset monetisation side and on the strategic disinvestment side. We are getting into much more intricate transactions now. Pre-2004 had been a very hectic time for disinvestment and after that between 2004 and 2014, there were no strategic sales but only minority offerings. Then 2016 onwards, strategic sales were announced and transactions have taken place but all of them were in the CPSE space — from one CPSE to another — making it mainly a consolidation exercise. Lot of minority stake sales took place, more than Rs 3 lakh crore was garnered in the last six years, listings, OFS and ETFs were also done. That policy, I think, is now undergoing a change. We started off in November 2019, which were big ticket announcements, away from the earlier tranche, which was mainly small-scale, consulting, loss-making, etc. For the first time a very healthy shipping company, a very healthy Container Corporation of India, were brought to the table. So, we are moving away from the minority stake sale strategy and the foundation is going to be strategic sale going ahead, and we have been saying very openly now — privatisation. The government clearly has shown the intent to withdraw and offer this space — production of goods and services — to the private sector, which is also come of age in many of these areas. Our capacity right now is not attuned to the increase in number of transactions. We are thinking in that direction on how to increase capacity as we head into that direction.

There seems to be some inconsistency between the strategic disinvestment policy which calls for “bare minimum presence” of PSUs in strategic sectors and privatisation of banks, because even after strategic sale of two banks, the government will be left with ten banks…

If you look at the policy, in the other sectors there is nothing. But that doesn’t mean that in a year you will do two or three or four. As you will realise, you can’t clap with one hand…till people are not ready with competitive bids. The government is putting in a lot of money into projects to kickstart the Capex cycle…this will create a lot of demand for the private sector to provide those services when government makes investments. This also means that those people producing these things will want to invest further, acquire more capacity and in this process, they would be interested in acquiring public assets. Therefore, early success in our program will lead to more offerings in future. There is no point offering everything, it’s not like a fire sale. Our process is well-defined down and it is based on fundamentally good competitive bidding. One thing to note is that our biggest emphasis is on competitive and non-collusive bidding. We have to see that there is more competition in bidding, and that will be our biggest (defence) against any allegation. The second side of this coin is that there has to be interest in our offering.

Is this happening with Air India?

Yes, of course. When I said multiple bids, there are multiple bids. The idea is that we have to avoid collusive bidding, one bidder should not know about the other, he should bid the best price and think that he is going to get it unless he bids the best. It is not an issue of a single number. We have maintained an arm’s length on that. Even when the transaction adviser flags a problem, he masks the name of the problematic entity. In these matters, there is a general distrust in some people. They will say that the government handed the company over to someone. So, we have got everything covered and we don’t want any leakages in our system and want to build a credibility in the system. People of India in general are quite comfortable with private sector. Notions like “family silver” are from an old, socialistic situation. The point is that when companies are privatised, everything has to be above board. Therefore, the best thing for us is that bids are competitive and there is interest in the offerings.

There has often been a debate on the ambitious disinvestment targets, whether they remain achievable or not…

Many people are pointing out that the target has been revised from Rs 2.1 lakh crore to Rs 1.75 lakh crore. The point is that you can write any number but you have to successfully culminate it into transactions. And for those transactions to be culminated, it is not an arithmetical exercise because for that competitive bids are necessary.

Why COVID had an impact on this because our two offerings — Air India and BPCL — were in the sectors, which got immediately hit. That was not the time when any investor would come. It’s not like tax, which is predictable. You know that if economy is doing well, taxes will come. When the market was doing well, it wasn’t doing well for all the companies. When money was coming in during COVID time, it was restricted to very few companies. There were a large number of companies in power, oil, etc because oil prices and power demand crashed and their stocks crashed. Most of our companies are in these sectors and not in sectors like IT.

We cannot have the headline SENSEX to tell us that this is a good environment. One should watch the CPSE index. Only then it will give you an opportunity. If we do indiscriminate disinvestment, we only depress the value of CPSE stocks, which means investor wealth goes down, which means they are relatively less prepared to subscribe to our offerings and this leads to further discounts, people exiting in hordes and it leads to a crash in our stocks. That’s not a good strategy. But strategic sale is where market is favourable. That’s where they say that they will give more value to private management over public sector management. So, whenever we announce a strategic disinvestment and market gets the confidence that our deals will get concluded, the value of stock rises.

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