Unlike most other policy actions of the government the entire process of disinvestment as being reported in the media has similarities to the Destructive Disinvestment of UPA Government. In recent days we have read about proposed disinvestments in ONGC, SAIL and Coal India. Initially when the entire disinvestment programme was launched in a bigger manner under the previous NDA government the idea was to use potentially positive policy moves to disinvest or sell out companies in a strategic sale manner where the ownership changes to the private sector and as such the government tag is removed from the companies, greater professionalism comes in and the process creates value for the investors. However the entire disinvestment programme subsequent to the Coal India sale a few years back became one of destroying the wealth that is imbedded in PSU’s as the sales happened at lower and lower valuations without policy actions to improve the valuations of the companies. Just to meet disinvestment targets PSU’s that are owned by the President of India and are funded by tax payer money were and are proposed to be dumped at absurd valuations.
On the other hand white elephants like Air India, BSNL etc are getting dole outs from the government again out of shareholder money. There was an opportunity to disinvest out of companies like MTNL in a strategic manner at some stage which would have helped the company not only survive but also thrive due to its predominant presence in Delhi and Mumbai. It is absurd that the government wants to continue to run an airline, a telecom company etc at a time when these companies are clearly not equipped to compete with the private sector in a competitive environment.
Strategic sales like Maruti, Hindustan Zinc etc have helped these companies adapt and thrive by improving productivity. However the way disinvestment is being carried out today, at the worst of times makes me wonder what the thought process of the government is.
The initial disinvestment of Coal India was done appropriately. However later the government decided to sell more of the company when the price was Rs 400. However at this time the Coal scandal was on, global coal prices were falling and Coal India has been unable to increase production courtesy previous policy actions of Mr Ramesh/Ms Natrajan. The market sentiments also were bad. As a result the stock price has crashed to Rs 260 levels. Coal India has Rs 50,000 Cr plus of cash, the government should have just taken an Rs 10,000 Cr dividend which it eventually decided to take in the last quarter of 2013-14 when Chidambaram was trying to show a lower Fiscal Deficit at any cost.
Similarly NTPC Follow on Offer disinvestment was planned when the entire power sector was in doldrums, NTPC capacity addition was lagging and there were fuel price issues. The issue was planned when the stock price was Rs 200 plus and fell to Rs 140 at the time of disinvestment. Similarly NMDC was dumped into the markets at a time when the iron ore mining ban issue is prevalent all over the country and iron ore prices globally have crashed. The better time obviously was when the iron prices were better and the mining issues were resolved.
I have mentioned this earlier also the better opportunity obviously is to sell high. Strategic sale of ITC will yield the government Rs 50,000 Cr, get in over $ 8 billion of FDI and also reduce the pressure on the INR. The remaining holding of Hindustan Zinc could also have been disinvested at extremely good valuations and can still be done.
It is extremely unfortunate that the thinking process has not changed and the same kind of disinvestment is being proposed. First there should be Diesel deregulation, subsidy cuts and then ONGC should be sold. Similarly there needs to be visibility on improved performance at Coal India before it is sold so that the sale is also at a good valuation and the investors also make money.
Lets hope better sense prevails and disinvestment is not carried out just as a book balancing activity.