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NEW DELHI, June 6

Public sector units divested through strategic sales has yielded better returns with the stocks of the disinvested PSUs showing better PE ratios (price of share divided by earnings per share), according to a study conducted by the Federation of Indian Chambers of Commerce & Industry (FICCI) to review the ongoing disinvestment process.

But the strategic sale has not come without its pitfalls. There are two critical issues, the study said. First, the issue of monopolistic situation arising out of an acquisition have raised some concern. Both the IBP and IPCL sale give rise to such possibility, the study said.

The other issue is the possibility that the acquirer shifts funds from the newly acquired business to some other activity related or unrelated, as seen in the case of VSNL, it said.

On the question of a monopoly situation, the study revealed that the relatively small size of the divested PSUs compared to the global majors in the respective sectors indicate that a monopoly situation emerging out of the divestment process is unlikely. "The liberalised trade and investment regime in the country coupled with the WTO framework provides the requisite safeguard to prevent a monopolistic situation," the study said. "At the same time, the consolidation process as a result of disinvestment in big ticket PSUs would provide the critical economies of scale that is essential for companies to remain globally competitive,'' it added.

With regard to diversion of free reserves, the study said that the shareholders agreement should build in the restrictive clauses so as to guide the acquirer on how to invest. Even in the case of VSNL, the company has been guided by similar clauses. Still if there is a controversy over it the operating Ministry controlling shares of the disinvested company may enter into a dialogue and resolve the irritants as it has been doing. "The issue should not be blown up and thus create a mental block for other big ticket disinvestments which are in the queue,'' the study said.

Examining the pace of disinvestment the study said that a look at the figures in the privatisation programme shows that the pace has been improved with the targets progressively moving up from Rs 2,500 crore in 1990-91 to Rs 12,000 crore in 2001-03. But the achievements fell far short of the targets, the study said. Of the Rs 66,000 crore of disinvestments planned between 1990-91 and 2001-02 the actual sales was only Rs 25,260 crore, which is barely 39 per cent of the targeted amount.

Though actual achievements overshot targets in some years the actual sales were less than 25 per cent of the targets in at least six of the 10 years. However, the ratio of achievement to target has gone up from 18 per cent in 1999-2000 to 21 per cent in 2000-01 and further to 42 per cent in 2001-02.

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