‘Disinvestment of BPCL, Shipping Corp to be completed this fiscal’

Shishir Sinha New Delhi | Updated on October 11, 2021

‘Air India’s disinvestment taught many lessons for the future’

“Air India’s strategic disinvestment process was too complex, but taught many lessons for future strategic disinvestment process,” said Tuhin Kanta Pandey, Secretary in Department of Investment and Public Asset Management (DIPAM). BusinessLine caught up with Pandey to know what’s next on the agenda now that Air India’s disinvestment process has reached near completion. Excerpts:

What are the key learnings from the Air India disinvestment process?

Privatisation has happened after 19 years, and no one had any institutional memory except for files from the previous period in terms of how it has been done till now. So, we had a process, but we did not have a transaction. However, now we have a process, and we have tried on a transaction.

Also, the whole process involved a lot of inter-ministerial work and some things required streamlining. What it means is that we were delegating work so that the process doesn’t get bogged down in too many layers. Layers are required for decision-making, but in the committee process, there is learning for all the departments – intricacy of share purchase agreement and the rest. Going forward, their confidence in other privatisations, clauses, legal issues, balance sheet issue, all of these will become much clearer for all. It is like a learning curve, which will come in, and subsequent transactions will benefit.

And, the most important point is that it was one of the most complex cases and not all officers of DIPAM were experienced to deal with such cases. Many officers were common and were also those attending multiple transactions. So, they had tremendous learning in this process and, of course, their level of comfort increases and their learning is embedded now.

The first time is always difficult. This disinvestment was not just difficult from the process point of view, but also because of the complex asset involved. The company itself is complex. It also has huge linkages with the economy.

Then the intricacies of bilateral, brand, slots and how an airline operates, this kind of learning have been quite good – in a sense handing a complex transaction brings more confidence.

Did past lessons

from strategic

disinvestments help?

In some respect, laws have changed like listing laws, disclosures and SEBI laws. Then we have new Companies Law (2013). There are some legal changes as well. But broadly, they did a great job also, and several of those learnings such as valuation methodology helped.

These methodologies are very common in investment banking, so some of the work they did came very handy to us in the form of manualisation or what so ever documents they had and the way they did it.

We have learned from those transactions in terms of valuation methodology – it is practically the same like the discounted cash flow method. Subsequently, a white paper was released, which also contains a lot of information. So, that learning has been there. But one thing is that you are not just learning but also doing it.

What is next on the agenda for DIPAM?

In the BEML, Shipping Corporation, Nilanchal Ispat, Pawan Hans and Central Electronics Limited, due diligence process is going on and now bidding can take place. At the same time, balance sheet for previous year and audit by C&AG is also taking place as these information need to be provided before one could do the financial bid. Along with BPCL, we are moving forward on these, and to conclude them within the fiscal is our target.

What is the development on the LIC IPO front?

The progress is good in finding Indian Embedded Value (IEV). I would say that is humongous amount of work. What is involved here is institutionalising a new kind of software because there is a certain thing which the existing software could not have done in terms of producing embedded value. A lot of these had to be put in the new framework, otherwise the reported actuary would not sign it.

LIC also had to appoint advisors to lead them to conversion. There are over 25 crore policies. It requires several servers to do the data crunching. Then there was consolidation issue of the accounting as you have to go for listing. There we had to involve the Institute of Chartered Accountant and take their advice.

LIC is a unique entity, it is a Corporation. It had many exemptions because it was predating insurance Act, then there was government guarantee. It has all the complexities of the Air India kind.

I would say tremendous amount of work has been done. We have been up at it more than a year, and we are moving in the right direction, and we should be able to produce IEV and we are targeting IPO during last quarter of current fiscal

Will the DRHP for LIC IPO be filed next month?

No, it will be filed a little later. All timelines have been worked out. It is just like one feeding another. You may have several chapters of DRHP ready and, at the same time, the wait is on for IEV, which will be fed on once ready. It is under preparation.

What is progress on the privatisation of the public sector general insurance company and two nationalised banks as announced in the Budget?

The Department of Financial Services is looking into it. Legally, things are clearer for general insurance company. So, DFS has to indicate, then we will go for Cabinet clearance. For nationalised banks, first amendment in the Nationalisation Act is required.

What is the progress on strategic disinvestment of IDBI Bank?

The required amendment in the Act has been done, which means there is no problem in terms of licensing. Advisors have been appointed and soon they will engage with the RBI in order to structure the transaction. The RBI has to clear on the level of equity we can divest, what would be the glide path, and who could come in. These are critical issues that will form Expression of Interest (EoI). Our preparation for EoI has begun and our target is to issue that by December

How are things moving on in the asset monetisation and SPV for land bank?

Asset monetisation has two parts – core and non-core. We are already proceeding with core. Different departments are doing it and NITI Aayog has a plan what we call as National Monetisation Pipeline.

Then, we have non-core asset monetisation, which involves land or surplus assets. There the priority is on companies going for strategic disinvestment. There you need to think about various options such as developer model, outright sale, auction or lease. So, in case of strategic disinvestment, you have three situations.

In case of unlisted companies, you have to separate core and non-core asset and dispose accordingly. In case of listed companies, we have to demerge, give shares to minority shareholders in equal proportion. Then we have closed cases, where VRS has to be given and land has to be disposed. Registrar of Company will not strike off the name till assets and liabilities are squared off.

So, if assets are not sold in case of closure ones and typically when staff are separated, there is no body to complete disposal of assets. They are also not very keen to do the asset sale as they fear otherwise it will be closed. This means somebody else has to do it. Now who is somebody?

Administrative Ministries are not capable. So, that is why we have thought of a Special Purpose Vehicle (SPV) for cases where somebody will do the handholding. They can even charge some fees from CPSE and then do it for them or the title can come to them on book value, which we have facilitated through Stamp Act Amendment and Capital Gains Amendment.

Otherwise, today NBCC is able to work as land management agency of some CPSEs. Even the RLDA can do it, but a systematic approach to the whole thing is the SPV. Cabinet note is almost ready and once approved it will be in place.

We have Department of Public Enterprises with us, and we will be transferring the work of monetisation to them.

Published on October 10, 2021

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