SCI too on the block, but FY21 mop-up to be half the target

The Centre on Tuesday invited expression of interest (EoI) for its 63.75% stake in Shipping Corporation of India (SCI), worth about Rs 2,600 crore at the current market prices, adding one more central public sector enterprise (CPSE) to the pipeline of state-owned firms being put on the block. The last outright sale of a CPSE by the government was carried out way back in FY04.

While sale of SCI and rail PSU ConCor might spill over to the next fiscal, oil retailer BPCL and, probably, loss-making carrier Air India are likely to be sold to strategic buyers this year itself. In addition, a clutch of big-ticket IPOs would hit the market this year and a few buybacks of shares by CPSEs are likely. However, the government’s non-debt capital receipts will still be way below the ambitious Rs 2.1 lakh crore target.

The disinvestment receipts so far this year have been about Rs 12,380 crore or 6% of the annual target.

The receipts this fiscal are likely to be around Rs 1 lakh crore; at least Rs 60,000 crore is expected to be mopped up from BPCL disinvestment, given that the sale will be at a premium to current market prices.

However, next year could prove to be a watershed year in privatisation, given the new strategic sector policy on the anvil and comments made by senior government functionaries in recent weeks that the privatisation process would be more ambitious. Of course, given the sudden fall in revenue buoyancy due to the Covid-19 pandemic, the government has no option but to augment asset sales and privatisation, in order to avoid a big rise in borrowing levels.

In the two-stage process, the last date for submission of EoI for SCI is February 13, 2021. The shortlisted bidders will be asked to put financial bids in the second stage. The transaction will likely materialise in the next financial year.

The SCI stock closed at Rs 86.9, up 5.27% from the previous close on the BSE. SCI posted a net profit of Rs 336 crore in FY20 and `479 crore in H1FY21. According to terms, bidder/s for SCI must have a net worth of Rs 2,000 crore. The government has barred other CPSEs from participating in the transaction. The company, which owns a fleet of 59 vessels, is involved in the business of transporting goods and passengers.

Interacting with an industry body, finance minister Nirmala Sitharaman last week said efforts to disinvest some of the big companies were on track and the Centre would make a lot of progress in this regard by end-FY21.

Recently, the government received EoI from potential buyers for its 52.98% stake in BPCL and 100% in Air India. The sale of the national carrier could fetch the government only up to Rs 3000 crore, post the buyer’s takeover of part of the airline’s debt.

On November 16, three bidders showed interest for BPCL buyout — Vedanta, Apollo Global Management and Think Gas. The Centre’s stake in BPCL is worth about Rs 43,000 crore at Tuesday’s closing price on the BSE.

The process is on despite the BPCL stock losing 28% in value from about Rs 60,000 crore in November 2019, around the time the stake sale proposal was approved by the Union Cabinet. However, the actual receipts will depend on valuation and consideration of a premium.

On December 14, the government has received ‘multiple’ EoIs for its 100% stake in AI including from Tata Group, US-based NRI firm Interups and two AI employee groups, sources have said. The financial bids for AI will be at the enterprise value (market value of debt and equity) and will comprise at least 15% in cash payment to the government and debt takeover by the bidders equivalent to 85% of the value quoted.

Among other disinvestment routes, the listing of Indian Railway Finance Corporation and RailTel may fetch about Rs 4,600 crore and Rs 1,000 crore respectively.

While two CPSEs have already bought back a portion of their shares, seven more, including NTPC, NMDC, Coal India and MOIL are expected to buy back shares from the government and other shareholders by March 31, 2021. Together, NTPC and NMDC buybacks could fetch about Rs 2,200 crore to the Centre.

While bulk of the shortfall from targeted disinvestment receipts will be due to a deferment of the mega IPO of Life Insurance Corporation (a 10% stake sale could have fetched around Rs 80,000 crore), delay in floating of EoI for the Centre’s 30.8% stake sale in Container Corporation and IDBI Bank would push these transactions to next financial year. After clarity on land leasing policy from Indian Railways that has to be approved by Cabinet, the EoI for ConCor stake (worth about Rs 7,250 crore at current market prices) will be invited. Similarly, the government is yet to invite bids for its 47.1% stake in IDBI Bank worth about Rs 17,200 crore at current market prices. IDBI stake sale could also be pushed to next financial year.

With tax revenues to fall short of target significantly, maximising non-debt capital receipts will be of immense help for the Centre to keep spending momentum to boot economic activity amid likely 7.5% contraction in real GDP in FY21.