Covid-19 throws a wrench into India’s disinvestment plans

NEW DELHI: With the stock markets volatile, India has put disinvestment plans – both strategic and non-strategic – on the back-burner.

Strategic divestment in Shipping Corporation of India and Container Corporation of India has been put on hold in the wake of the global outbreak of Covid-19 even as the government evaluates plans to reduce its stake in state-owned entities to 51%.

Deadlines for submitting bids for Air India and Bharat Petroleum have already been extended by more than a month to April 30 and June 13, respectively. The deadlines could be extended if potential bidders seek more time, said a government official.

“There is a world shutdown. Only minimalistic economics are functioning in terms of essential supplies… in such a scenario, timings (of strategic sales) will have to be rescheduled,” the official said.

On the non-strategic side, where stakes were to be sold to lower the government holding to below 51%, officials said the timing would not be right now as the correct asset values can’t be derived during the current market fluctuations.

“Given that the markets are volatile, this is not the right time to go in this direction… the share price of several entities is getting affected,” a second official said.

The administrative ministries of these companies and the entities themselves will now have to take a call on the stake sales.

“It has to be decided whether the shareholding can indeed be brought down to below 51% in select PSUs because the Cabinet decision was only in-principle, not generalised,” said another government official, adding that it would be for the PSUs to convey to the Department of Investment and Public Asset Management whether they can take this route.

Finance minister Nirmala Sitharaman had announced in the budget in July last year that the government will consider lowering its stake in non-financial public-sector companies below 51%.

“The government will undertake strategic sale of PSUs. The government will also continue to do consolidation of PSUs in the non-financial space as well,” Sitharaman had said.

“Given the present state of the economy, disinvestment proceedings may not prove to be a success story, given the reluctance of bidders to commit such massive capital contributions… as well as the possibility of poor valuation of the PSUs proposed to be disinvested given their poor financial condition,” said Atul Pandey, a partner at Khaitan & Co.

The government-set target of Rs 2.01 lakh crore from disinvestment in the current financial year is more than three times the revised target of Rs 65,000 crore in FY20.

The benchmark BSE Sensex came off an all-time high of 42,273.87 in January to a low of 25,638.9 in March. The index climbed 9% to 30,067.21 on Tuesday.