‘Not for high dividends … If we suck profits out, PSUs will not be able to invest’: DIPAM Secretary

There seems to be a clear move away from strategic disinvestment towards a broader public asset management strategy. Is it going to be the way forward in the medium to long term? And could you give us an insight into what went behind this shift?

It is important to look at public asset management differently from fiscal management … For 10-15 years, I would say there was a broad understanding between the pink press, economists and maybe even the government that you are bringing the fiscal deficit down, and for that you must disinvest … you let the capital (in PSUs) go. But the markets do not look at it that way … and most of these (PSUs) are market players … investors expect the promoter to also manage these companies in a similar way as any commercial business enterprise. This means that boards have to be really bothered about shareholders’ interests … If minority shareholders start feeling that the companies care for their interest, they will care for the company’s stocks also … So I think there was a bit of disconnect when we had a focussed disinvestment strategy.

There was also a time horizon issue. If you are selling a certain number of shares, you are letting go of future dividends. It is like if you are disposing of your property, you are making one-time capital gains, but you are also foregoing future rental income … So, you are not really counting the opportunity costs—future rentals, or in our case, future dividends … We have also realised that there has to be an alignment of interests of the minority shareholders with those of the majority shareholders (government).

Talking of PSU dividends, there is a feeling in some quarters that perhaps PSUs are being forced to pay high dividends, because of which they are not able to invest in raising their capacities as much as they should.

It (high dividends) is no longer the case. We are not asking them to maximise dividends. If we suck the profit out, the PSUs will not be able to put some of their earnings into their projects, which means that growth will not come … then as an investor, your share price will not grow because gains come only from profitable growth.

They (PSUs) can take exemptions also, and many times they have said that they will not be able to give it … A consistent dividend policy is much better than a maximum dividend policy … There is a certain amount of deliberation they must do. Investors also need some certainty. There are certain investors … pension funds and others, who are interested in stable returns and high dividend yield companies. In between our dividend yield used to be very high because the share prices were very low. That is not the case anymore.

So, is the era of the government pushing for large strategic disinvestment transactions over, or will privatisation go hand in hand with a more calibrated approach to stake dilution in PSUs and asset monetisation?

In the overall approach we are presently following, we want to be a lot more calibrated. I don’t think there is a lot of focus currently on big deals and big-ticket privatisations.

We are now following a holistic public management strategy where disinvestment is based on opportunities and calibration, and I would also say a gradual process, not very sharp (offloading of shares) … Because stocks is a sensitive game, where you have complex supply and demand dynamics …We don’t want to create overhangs … It could affect share prices for many months.

DIPAM is making efforts to help PSUs with image building and perception management. What is the specific problem that you see on that front?

The market talks about something called public sector discounts. They look at whether the PSU managements are completely in alignment with the interests of the companies and shareholders or whether they have multiple objectives to serve, other than the commercial objectives. Even in private companies, there are multiple objectives … but there is an element of constraint within the public sector managements due to certain rules just because they are government-owned … Perception is always important in the market … As we are trying to make the managements conscious about minority shareholders and markets, we are also trying to align their interests along these lines … for instance, they should have communication skills for effectively handling and addressing analyst calls and talking to the market … in that context, we had taken an initiative jointly with the Capacity Building Commission for senior PSU executives and we will continue (with such initiatives).

Would it be correct to say that the government wants PSUs to be as conscious of the markets and as competitive as their private sector peers?

Sure, that is the objective. I think this approach will lead to a lot of value creation.

Given DIPAM’s thrust to make PSUs more market-oriented, is there any plan to have more direct intervention or coordination between DIPAM and the PSUs?

We don’t want a very intrusive approach because they are listed companies that have independent boards and independent directors. From our side, it is basically a nudge and we believe in giving a soft nudge … Also, we are doing a lot of capacity building of officers in the administrative ministries who are dealing with the companies, like nominee directors so that they can meaningfully contribute to the decision-making process at the board level … I  think with this kind of capacity building and the right alignment between (annual performance) MoUs and performance-based systems is leading to a lot of good work.

IDBI Bank’s privatisation has been hanging fire for a while now. What is the latest you can share on that front?

What we understand is that the RBI is in an advanced stage of letting us know on (bidders meeting) the fit and proper criteria. Once that is done, we will be able to take them (qualified bidders) to a virtual data room where they will start doing their due diligence on the bank … There are bidders that are already qualified in a way but because it is a bank, there was an added clause of the RBI’s fit and proper criteria.

We are hoping that we will be able to make substantial progress and maybe even complete progress this year … We never expected that the fit and proper (vetting by the RBI) will take so long.

The past few years saw a number of PSU-to-PSU mergers and acquisitions, including public sector banks (PSBs). Could there be more such transactions going ahead, particularly in the PSB space?

No, I don’t think so as far as the PSBs are concerned. In other sectors also, we will follow a need-based approach. I don’t think there is a deliberate push to do those kinds of transactions. Mergers can be helpful if you can execute them in a reasonable time and there is actual synergy. There are always cultural differences even between PSUs and HR (human resources) issues are very important. They cannot be just ignored or dismissed … You should go for such M&A transactions only when you have enormous advantages.

Otherwise PSUs can coexist and compete. Even in the case of PSBs, there was an issue of the size of some banks. They were too small to compete with other banks with much larger networks … So there were specific needs that were there in PSB mergers.