Decks cleared for strategic sale! Government okays plan to exit

01 November 2016

The government on Thursday approved an ambitious plan to sell loss-making state-owned companies, subsidiaries and select manufacturing plants to strategic buyers, setting the stage for the return of privatisation after more than a decade.

The cabinet committee on economic affairs (CCEA) has allowed for strategic sales through a two-stage auction process, which will involve submitting technical and financial bids. The companies approved for strategic sale or privatisation include Scooters India, Pawan Hans, Hindustan Newsprint and units of Cement Corporation of India.

A decision to sell four steel plants of NMDC and Steel Authority of India and merge three state-owned companies with their public sector counterparts was also taken.

The government will also sell a 26% stake in Bharat Earth Movers Ltd to a strategic bidder, reducing its stake in the company from 54% to 28 %.

The strategic sale plan had been prepared by Niti Aayog.

“The recommendations of the Niti Aayog with regard to both disinvestment and strategic sale came up for consideration.

In principle, the Cabinet has approved the recommendations with regard to some of the units. Specific cases would now come up after detailed examination,” said Finance Minister Arun Jaitley said.

The NDA government in its previous term had followed a privatisation strategy and sold off companies such as Maruti, VSNL, Balco and Hindustan Zinc. But the UPA government, under pressure from the Left parties, had abandoned the programme when came to power in 2004.

The government, had in this year’s budget set a strategic sale target of Rs 20,500 crore. So far, no money has been raised. “At the moment we are at the mid-point of the year and this year we have already made a significant headway.

The department of investment and public asset management (DIPAM) will take up each case separately and hold discussions with the respective administrative ministry about the suitability as well as the modality of strategic sale.

The government has identified seven loss-making entities where it will sell its entire stake to a strategic bidder. These are Scooters India, Bridg & Roof Company India Ltd, Project & Development India Ltd, Pawan Hans Ltd, Bharat Pumps &Compressors Ltd, Central Electronics Ltd, and Hindustan Prefab Ltd.

Three companies — Hospital Services Consultancy Corporation Ltd, National Project Construction Corporation Ltd, and Engineering Project (India) Ltd — will be merged with with similarly placed central public sector companies.

The plan also includes outright sale of subsidiaries and individual plants of companies. Hindustan Newsprint Ltd, a wholly owned subsidiary of the Hindustan Paper Corporation, and Ferro Scrap Nigam , a wholly owned subsidiary of MSTC will be sold through a similar two-stage auction to strategic buyers.

Hindustan Organic Chemicals Ltd will sell its entire stake in Hindustan Fluorocarbon completely. Cement Corporation of India will divest its production units independently or in a group of units to strategic buyers.

Four steel plants have also been identified as sale. These include Bhadrawati, Salem, and Durgapur units of Steel Authority of India, and Nagarnar Steel plant of NMDC.

The government has set a target of raising Rs 56,500 crore through direct stake sales this year, but so far it has raised only around Rs 4,000 crore. It has, however, managed to raise Rs 21,000 crore by nudging five state-run firms to go for share buyback.

Source – ET