Government weighs privatisation of a few Maharatna and Navratna PSUs

P Manoj MUMBAI | Updated on September 03, 2019 Published on September 03, 2019

May look at ‘golden share’ concept while diluting stakes below 51%

The Narendra Modi government is also weighing the option of privatising a few large state-run firms including oil refiners through strategic disinvestment in addition to a budgetary proposal to cut the state’s stake in some of these entities to below 51 per centwithout giving up management control or altering the government character of these firms.

The privatisation option stems from concerns that selling stakes below 51 per cent through an “offer for sale” route would take these firms out of government control “without netting any control premium” to the Exchequer from such deals in the absence of a law to retain them as government companies.

“This would expose the firms later-on to take-over attempts,” at least two people familiar with the government’s thinking said, asking not to be named because they are not authorized to speak to the media.

Finance Minister Nirmala Sitharaman in her budget speech to Parliament on July 5 said: “Government has been following the policy of disinvestment in non-financial public sector undertakings maintaining Government stake not to go below 51 per cent. Government is considering, in case where the Undertaking is still to be retained in Government control, to go below 51 per cent to an appropriate level on case to case basis. Government has also decided to modify present policy of retaining 51 per cent Government stake to retaining 51 per cent stake inclusive of the stake of Government controlled institutions” .

To ward off potential take-over attempts in cases where the stake drops below 51 per cent, the government may look at introducing the “golden share concept” that entitles it to veto rights over such matters, the chief executive of a state-run oil marketing company said. He declined to be named.

“There are various things which are being talked about today such as selling the entire holding to a private partner or strategic investor. On the other hand, if the shareholding is going to go below 51 per cent as it is existing today, it will cease to be a government company. But, even if the holding falls below 51 per cent, it can still be a government company; this require a change in rule or law,” he said.

The question of putting safeguards to prevent hostile take-overs does not arise, the oil PSU head said.

“Why should the government do such a thing. If they don’t want it to be a government company, they can decide to do whatever they want to do. That’s what they are currently thinking of, selling the entire stake in some firms that includes Maharatna and Navratna PSUs to a private investor,” he stated.

He said that there is no clarity on the plan to cut the government’s own stake in some PSUs to below 51 per cent yet retain government control over them by clubbing the stake of other government-controlled institutions to make it 51 per cent.

“It can be even without clubbing the institutional holding also, because if you look at what is happening in certain countries such as the case of Italy’s oil and gas company ENI S.p.A, the government is holding only about 30 per cent, but they have a golden share. That is also a possibility,” the executive said.

The chief executive evaded a reply on whether privatisation of oil PSUs made sense.

“Various countries adopt different models. For strategic reasons, the government may want to have some control, but that can be achieved through one company not necessarily through all the companies. So, if the government is thinking that we need to open-up and bring in private investments to improve efficiency and promote competition, they can go ahead and do that. It is a debatable point whether it is right or wrong. If they ask me, then I’ll give my arguments against that and from their perspective. We have not been consulted so far on this,” he added.

“Government is setting an enhanced target of Rs1,05,000 crore of disinvestment receipts for the financial year 2019-20. 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,” the Finance Minister said in her Budget speech.

Published on September 03, 2019
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