Divestment lull likely after LIC IPO


There are still a few hurdles to clear for companies in the strategic sales pipeline such as Concor, BEML, Shipping Corporation

There are still a few hurdles to clear for companies in the strategic sales pipeline such as Concor, BEML, Shipping Corporation

Even though LIC’s IPO is expected to roll through on Monday and help the center meet about a third of its divestment target for the year, there’s likely to be a pause in privatization efforts from large public sector companies over the next few months .

While oil marketer BPCL is not finding buyers at this time and the sale process will resume later, it will be several months before the next group of public sector companies move forward in the divestment pipeline.

These include IDBI Bank, Shipping Corporation of India (SCI), Container Corporation of India Ltd (Concor) and BEML, as well as a few others that have had an asset restructuring and other transition challenges to complete before their sale process is initiated, said senior Treasury officials.

“We will resume the BPCL transaction later, but as of now, we expect to issue the preliminary information memorandum for IDBI Bank ahead of Concor,” said a senior official with the Department of Investments and Public Assets Management (DIPAM) at the Ministry of Finance.

land leases

There are still some issues to be resolved with the railroads in relation to land lease agreements before the sale of the centre’s 30.8% stake in Concor, along with management control, is undertaken.

In the case of SCI, the Shipping House, located right next to the Maharashtra Vidhan Sabha, would have required state government approval to be included in the sale process. It was decided that the building would be spun off from SCI along with its own training institute in Pune prior to spin-off.

“The SCI Board of Directors had a meeting on Friday, which also addressed the demerger process. What to do with the split-off assets will be decided later, but the process is time-consuming,” the official explained. Similarly, Karnataka-based BEML has several acres of land in Bengaluru and Mysuru that need to be gutted before the privatization process moves forward.

The sale of the Nagarnar Steel Plant (NSP), an integrated three million tonne facility constructed by National Minerals Development Corporation (NMDC) Ltd, is also pending before the fracturing process is complete.

In October 2016, the Cabinet Committee on Economic Affairs (CCEA) had decided to dissolve NSP as a unit of NMDC, but changed the decision in October 2020 to spin off NSP as a separate company from NMDC and sell the new company to a strategic buyer. At that time, the sale was expected to be completed by September 2021. “The spin-off of the steel mill from parent company NMDC is nearing completion,” an official said.

The lowest goal

The government has budgeted divestment proceeds of ₹65,000 crore for the year, the lowest target in six years. The sale of a minority stake in ONGC and the completion of the LIC IPO will bring annual revenues to approximately ₹24,059 billion, which could rise to 24,270 crore by June after the sale of the center’s 51% stake in helicopter operator Pawan Hans is completed.

An ambitious target of £1.75bn was set for divestment in 2021-22, which was later revised to £78,000bn, but even that fell far short as LIC’s IPO fell due to severe volatility of the stock on delayed markets this financial year.

Expressions of interest for the privatization of HLL Lifecare Limited were received in mid-March and the transaction is being processed. For Ferro Scrap Nigam Limited, a wholly owned subsidiary of MSTC Ltd, expressions of interest have been requested by May 5th but details of the response are pending.

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