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Disinvestment Commission suggests strategic sale of 7 PSUs

The Disinvestment Commission has recommended strategic sale in the case of seven public sector undertakings. The Disinvestment Commission has also called for deferring equity dilution in the National Thermal Power Corporation as the present environment in the power sector was inappropriate.

The seven companies listed for strategic salre are: Engineers India Ltd (sale, public offer); IBP (sale, 33.9%); Engineering Projects (India) (sale, 74%); Hindustan Prefab (sale, 74%), Nepa Ltd (sale, 74%); Ranchi Ashok Bihar Hotel Corporation (sale, 100%); and Utkal Ashok Hotel Corporation (sale, 100%).

Releasing its fifth report in New Delhi on Monday, commission Chairman G V Ramakrishna argued that due to the low tariff structure and the relatively poor rates of return on net worth, any disinvestment in NTPC right now would lead to an undervaluation of government holdings, resulting in poor realisation to the exchequer. Ramakrishna emphasised that until reforms were put in place and new parameters for tariff fixation announced, no disinvestment in NTPC should be allowed.

The Disinvestment Commission chairman stated that till sectoral reforms in the power sector were completed "it may be desirable for the public sector to continue to play an important role in the power generating segment." The commission has classified NTPC as a core public sector unit.

This is the first time that the commission has recommended strategic saleof the public sector units.

Ramakrishna endorsed the government's move to postpone the Gas Authority of India's global deposit receipts (GDR) issue. He said that India the upheavals in the international stock and currency markets was felt less because India still did not have full capital account convertibility.

With regard to EIL, the commission has suggested a mixed disinvestment strategy. The report suggests that the company "may scan the market for a suitable strategic partner who many be offered up to 30 per cent equity stake in the company along with an appropriate role in the management." The partner should strengthen EIL "in terms of project management, global acceptance and access to international funds, without eroding its strong domestic brand equity."

The mix of EIL disinvestment also includes assigning 10 per cent of its equity towards the Employee Stock Option Plan, offering 10 per cent equity to public sector oil companies, and also to Gas Authority of India, Steel Authority of India, and the National Thermal Power Corp.

The report also suggested increasing the public stake from 6 per cent to 24 per cent through an offer to domestic investors, at an appropriate time, after the induction of a strategic partner.

For IBP, the commission categorically urged the government to review its decision to make a public offer in the background of its recommendations. The commission suggested that the government offer 33.9 per cent equity out of the government's holding of 59 per cent to the strategic partner. The stake of 33.9 per cent could be offered to an Indian oil company or joint sector oil company or foreign oil companies through international global bidding. The government should retain only 26 per cent equity in the company.

With regard to Engineering Projects India Ltd, the commission suggested that in the absence of a satisfactory response from a prospective buyer, the government should close the company and sell its assets after proper valuation through a transparent competitive bidding process. It also recommended fair and equitable compensation to the employees in the event of closure of the company.

In case of Hindustan Prefab Ltd, the commission said the government can offer up to 74 per cent of the shares to a strategic buyer. The strategic sale should be preceded by an stable voluntary retirement scheme policy the staff.

Classifying Nepa in the none-core sector, the commission recommended the immediate transfer of 51 per cent of the equity, which could go up to 100 per cent, along with the transfer of management to a strategic partner who could bring in the necessary funds to take up a turnaround plan.

Referring to Ranchi Ashok Bihar Hotel Corporation and the Utkal Ashok Hotel Corporation, the commission suggested that ITDC should fully disinvest its shareholding in favour of private entrepreneurs through a transparent and competitive bidding process after undertaking a proper valuation exercise through a financial adviser.

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