Promoter discount

The Centre’s latest attempt to offload minority stakes in PSUs through the CPSE Exchange Traded Fund has yielded a rich haul of ₹17,000 crore, helping the disinvestment programme mop up ₹32,997 crore so far this year. But this number is still woefully short of the ambitious target of ₹80,000 crore budgeted for the full year. This perhaps explains why the Centre’s attempts to fill its disinvestment coffers and avoid a fiscal deficit overshoot, are now getting increasingly desperate. Last week, the Cabinet Committee on Economic Affairs approved a decision to sell the Centre’s 52.6 per cent stake in Rural Electrification Corporation to Power Finance Corporation, mirroring last year’s controversial ONGC–HPCL deal. Parleys are also on to broker a similar deal transferring the government stake in Satluj Jal Vidyut Nigam to NTPC. While shotgun weddings between PSUs may seem like a clever ruse to meet the disinvestment target in the short run, they carry severe long-term repercussions. They dent the credibility of the Budget numbers, jeopardise the appetite for future disinvestment offers and undermine PSU valuations in the long run.

Though the NDA government has been rationalising such inter se acquisitions on the grounds that they create world-class firms with scale and synergies, in reality they have proved millstones around the companies’ necks. The ONGC-HPCL deal for instance, stripped ONGC of its cash surpluses and pushed up its borrowing costs to meet its capex needs, even as the merger synergies between the two companies have remained on paper as they have stayed independent entities. In the PFC-REC deal, with both the power sector financiers burdened by non-performing assets, the benefits are even more uncertain. In fact, this practise of the Centre co-opting Maharatna PSUs into mega-deals with each other while giving their minority shareholders the short shrift militates against the very spirit of disinvestment, which is to free these firms of government control and grant their Boards the autonomy to make decisions that maximise long-term shareholder value.

This last-minute scramble could have been entirely avoided had the Centre better planned its disinvestment programme this year and timed its CPSE ETF and minority stake sales to the euphoric markets that existed in the first five months of this fiscal. Even now, while celebrating the over-subscription to the ETF offer, the Centre needs to introspect on why this fund sale had to be sweetened with a discount when the PSUs in the fund’s portfolio were already languishing at such low valuations. The CPSEs making up the fund trade at a price-earnings multiple of just 9.5 times, after a raging bull market which has taken the Nifty50’s multiple to 25 times. That investors are willing to pay so little for every rupee of PSU earnings, reflects their deep disenchantment with a promoter who behaves more like an investment banker pursuing the deal of the day, than a long-term stakeholder.

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