India's great PSU sell-off kicks off at last

Several deep-pocketed and some surprise entrants have bid for national carrier Air India and the country's second-largest oil marketer BPCL. The privatisation of these companies could provide a pointer to the future of the Modi government's ambitious disinvestment programme that can potentially fetch $350 billion.

A simple tweet told a great story. On December 14, the Secretary, Department of Investment and Public Asset Management tweeted: “Multiple expressions of interest have been received for strategic disinvestment of Air India. The transaction will now move to the second stage.” That means the Maharajah, as Air India is called because of its icon, is finally in play - and the Modi government's great privatisation initiative is finally ready to take off after several false starts. The salt to software Tata Group, which had promoted Tata Airlines in 1932 - it was renamed Air India in 1946 and nationalised in 1953 - was among at least three bidders who submitted expressions of interest for the airline. The other bidders include a consortium of Air India employees backed by an unnamed fund and, according to some reports, India low-cost carrier Spice Jet in alliance with a foreign airline.

BPCL also finds interested bidders

The other big privatisation initiative of the Modi government has also got off the ground. The UK-based minerals major Vedanta Group, Apollo Global, a US-based alternate investment management firm, and Think Gas, an Indian clean fuel company, have submitted EoIs for Bharat Petroleum Corporation Ltd (BPCL), the country's second-largest oil marketing company. These will now be evaluated by a committee of senior government officials from the relevant ministries.

For Air India, the bidders will have to file financial bids within the next fortnight. The sale will be on the basis of enterprise value, which takes into account the value of all its assets and cash in hand as well as all its debts and other liabilities.

Making the Maharajah more attractive

It may be mentioned here that though the airline has $8.1 billion in debt, the successful bidder will have to take on only about $3.2 billion. The rest has been transferred by the government to Air India Assets Holding, a special purpose vehicle set up for the purpose.

The government's previous attempt at privatising Air India had failed to attract a single bidder on account of the high levels of debt in its books of accounts.

Declaring the government's seriousness about going ahead with disinvestment, Indian Finance Minister Nirmala Sitharaman told the virtual gathering at the Assocham Foundation Week, via video conferencing: "You would have seen in the last two months the pace at which the two major disinvestment-related activities, and also the others which are relatively bringing down the government share in some of the big public sector undertakings, are simultaneously happening. The pace of disinvestment will now gain a lot of momentum and those that have already received Cabinet approval will be taken up with all earnestness... Disinvestment will be happening,”

Plan to exit most PSUs

The Modi government has announced ambitious plans of exiting all public sector units in all but 18 sectors. Even in these, it will retain control over at least one and a maximum of four PSUs. These sectors include banking, insurance, steel, fertiliser, petroleum and defence equipment, among others. All other state-owned companies will eventually be privatised as part of the government's Atma Nirbhar Bharat (Self-Reliant India) initiative.

The Government of India currently controls 348 PSUs. These companies, many of which are listed, have a combined paid-up capital of $37 billion and earned revenues of almost $350 billion during the year ended March 31, 2019.

Time ripe to sell PSUs

With Indian stock markets ruling at all-time highs and scaling newer peaks every other day on the back of huge foreign funds inflows and improving economic indicators, this may be the right time for the government to look to divest some of its assets.

Investors keenly watching outcome