Budget 2023: What Low Divestment Mop-Up Tells Us About Strategic Stake Sales

The government is likely to miss its divestment target in fiscal 2023 after a mixed success with strategic stake sales.

The government managed to collect Rs 31,106 crore in disinvestment receipts as of Jan. 9, 2023, which is 48% of the budget target of Rs 65,000 crore. That includes the initial public offering of the Life Insurance Corporation of India Ltd. in 2022.

The much-touted LIC IPO fetched Rs 20,516 crore, against much higher expectations. The IPO has been pegged as one of the biggest wealth losers among Asia’s initial public offerings in 2022. 

The government has also put on hold the various strategic stake sales in Bharat Petroleum Corporation Ltd, Central Electronics Ltd., and Pawan Hans for reasons ranging from the withdrawal of investor interest to legal troubles.

Divestment receipts have largely trailed the target over the years. The government managed to collect barely 8% of its initially budgeted target of Rs 13,531 crore in the last fiscal.

However, for the current fiscal 2023, it may mop up around Rs 45,000 crore, or 69% of the budgeted target, as disinvestment receipts, according to Sudarshan Bhattacharjee, chief economist at Yubi. Yubi's projection for the next fiscal is a modest Rs 55,000 crore.

The government, however, is not solely concerned with the numbers; it's about the bigger picture of how reforms impact the overall economy, according to Tuhin Kanta Pandey, secretary of the Department of Investment and Public Asset Management.

The process of disinvestment is more about the impact of economic reform on individual companies than generating revenue for the government, Pandey told BQ Prime in November.

Lekha Chakraborty, professor of NIPFP, says that disinvestment is more about "valuation" than fiscal proceeds. This is because proceeds, according to her, are also influenced by non-economic factors such as industrial relations—relationships between managers and laborers, the degree of trade unionism and its bargaining power, and legal frameworks.

Given the global uncertainties, she said, "We are likely to see a realistic target this year, which will be crucial for budget credibility." Disinvestment is predominately a market-linked process, and the contemporary global economic headwinds are not favourable for setting an ambitious disinvestment target, she said.

Dividend receipts have shown an uptick in the past year. In November, the DIPAM Secretary also called attention to the dividends, adding that they are, in several respects, larger than the disinvestment receipts as well.

The concept of seeing disinvestment and dividends as two sides of the same coin borrows from the notion that until there is disinvestment, at least there are equity returns.

As per the DIPAM guidelines, every public sector enterprise would pay a minimum annual dividend of 30% of profit after tax or 5% of its net worth, whichever is higher.

In FY22, the government received Rs 59,168 crore from a Rs 50,000 crore target. The dividend receipts target for the current fiscal is set at Rs 40,000 crore.

BQ Prime takes a look at what remains in the 2023 pipeline in terms of the ongoing disinvestment:

IDBI Bank

Dipam Secretary tweeted on Jan. 7 that the disinvestment of IDBI Bank Ltd. has received multiple expressions of interest for the strategic stake held by the government and the LIC in the bank. The transaction will now move to the second stage. BQ Prime has learned there are at least four contenders in the bid.

Shipping Corporation of India

The government has received EoIs for Shipping Corporation of India Ltd. and a demerger of the land and building assets is awaited. The financial bids will be invited after due diligence and the demerger, the finance ministry said in a tweet, as it recounted the progress of various strategic disinvestment processes.

BEML

BEML Ltd. too has received multiple EoIs, and its scheme for the demerger of land and building assets was approved by the Ministry of Corporate Affairs in July. The ministry's latest update notes that the share purchase agreement and the shareholders agreement are being finalised.

HLL Lifecare

HLL Lifecare Ltd. has also completed the first stage and received EoIs. The disinvestment process is undergoing due diligence, with the draft SPA shared with qualified bidders.

Others

Projects and Development India Ltd. is under the lens for due diligence, and the disinvestment of the NMDC Nagarnar Steel Plant is still in the early stages with the demerger order issued and the commissioning of the plant under process.

Expressions of interest for Container Corporation of India Ltd. are awaited, as are the results of the roadshows for Hindustan Zinc Ltd.