The government will float three expression of interest next week to kick-start the strategic sale process of central public sector enterprises, Department of Investment and Public Asset Management Secretary Atanu Chakraborty said. In an interview to Sunny Verma, Aanchal Magazine and Sandeep Singh, Chakraborty also said that the Budget proposal to increase public shareholding from 25 per cent to 35 per cent will allow more capital flows, which will help fill the savings-investment gap. “In India, we still look at credit as an element of growth. Credit is no longer an element of growth, it’s the flows which are the elements of growth…that is what this Budget captures,” he said. Edited excerpts:
Strategic sales have been in focus. How do you plan to go ahead?
During these two years there have been five sales, raising Rs 52,000-53,000 crore. We have 29 companies on list for strategic sale. Last year, we could take 4-5 companies to the final financial bid stage but somehow it didn’t materialise. Smaller companies like Pawan Hans, Scooters India Ltd, Central Electronics Ltd, EPIL, we could sell 4 companies but we failed in 4-5 companies.
What about Air India?
In strategic disinvestment we go case-by-case. Air India has already been announced, but that’s just one case. Next week, we will announce three more expressions of interest. Therefore, there would be continuous conveyor belt where we will keep putting on products.
Has the process for Air India started?
We have started the process almost a month back. We are yet to go Air India specific alternate mechanism to take final approvals for certain things. One approval for going ahead has been given in the budget speech itself, which is approved by the cabinet. However, I will not preempt the decisions of the AISAM, but safe to say it’s on and we are preparing for it. There’s a lot of diligence which is going in.
Last year, you relied a lot on ETFs. Which sectors will be under focus this year?
Till last year we had not understood the power of passive investing and therefore, the interest by the passive investors caught us by surprise. However, as you will see, this budget has captured passive investment flows in number of paragraphs through number of decisions. Any instrument at any point of time is also a function of market behaviour and ETF would remain one of our potent instruments.
Post-budget, the way the indices reacted, it doesn’t seem they are too enthusiastic. Will it be a challenge for you given the target is very high?
What happens is that the analysts quickly see Part B and Part B had three things: HNI tax, excise duty and gold. Part A talked about capital flows and infrastructure investment. It talked about Rs 10 lakh crore, not all that money will come from the government. It talked about flows, private sector participation, letting the animal spirits drive the things and how they will drive also gets defined substantially. I think that takes some time to sink in. So, while the negatives have been captured, now only the upsides will come. Markets are yet to capture the positive trends in the Budget which are reflecting in the narrative and it takes time.
That gives you the optimism that the target is achievable.
Absolutely. I’ll give you a simple example, like raising public shareholding from 25 per cent to 35 per cent.
They (analysts) forgot that the additional float will be seen positively by the MSCI EM index, they will see the major companies and change the weight and more flow will come in. Even our analysts have to change their way. This budget is a paradigm shift in the way it went about how it would happen as an architecture.
Bond market probably understood better than stock markets.
Because there was specific reference to bond markets. They have to read more and the upside will be slowly captured when more people outside also read it because there are not many passive fund operators in India.
So those who are not passive fund operators do not understand the flow. In India, we still look at credit as an element of growth. Credit is no longer an element of growth, it’s the flows which are the elements of growth …that is what this Budget captures.
While SEBI has been asked to look into public shareholding, how do you see this?
I welcome this. It will permit more flows. Large float, more flows.
Do you think there would there be a resistance from the other side as many companies have been buying back shares from the public?
No, I think when you do a buyback, you also improve your capital structure, make it tighter and improve your return on equity. Perhaps leverage also goes up and that reduces cost of capital, your beta and everything reversely get improved and the enterprise value also improves.
That’s the theory part. If you see top 40 companies on sensex, promoter holding is below 40 per cent. So obviously they have already put out and they are far below the MPS norm. It is the promoter who still doesn’t understand, they will also understand that the markets have different kinds of demands.
The public sector entities have to still meet the norm.
No, only 12-14 entities are such which are to meet the norms and that too because last year we had 12 issues, more than the total issues put together. Then we have a one year block. Then DEA extended it by two years, but by August 2020 we will meet all the norms. We have already set the motion. Much before this announcement. Actually we are very happy with this, more shareholding can be put out. Because I have seen more companies larger number of holding outside are also much better disciplined, their capitalisation is better, their behaviour is better.
On the proposal into going below 51 per cent for non-financial companies, is there a concrete plan.
When they (passive fund investors) look at the float, they do not look at the count of government controlled entities in the float. They add back and see the total. We have gone by their guidelines on the calculation of government control which we have added back. There are two parts. Second part says that “51 per cent will be construed as this”, first part says that we can go below 51 per cent. It doesn’t mean that we will give away shares to someone else. When they are sold, they will be sold through the instruments.
So you can go below 51 per cent?
Yes, of course. Once 51 per cent is defined, going below it is first part of it. That’s a very momentous step, a very big step. Government has delinked 51 per cent with control. If you read para 98, it reads: in order to improve the capital flows into the Indian economy, it’s important to align domestic corporate systems and practices with global markets.