Divestment road map ready with action plan for FY19: DIPAM secy
Listing very small CPSEs will not be correct, says Neeraj Gupta

The disinvestment process is well on track. The listing of central public sector enterprises (CPSEs), conclusion of strategic divestment and more offerings around the two exchange traded funds (ETFs) with two new instruments for debt and equity would be pushed aggressively to meet the target of Rs 80,000 crore in FY 19, a senior official said on Thursday.

“We have 48 transactions in the market. There are 14 companies to be listed and of them, four have been already listed. The rest are in advanced stages. Listing is a market exercise and we are looking for the right opportunity. But we are committed to list them,” Neeraj Gupta, secretary, department of investment and public asset management (DIPAM), said in an exclusive interview with Financial Chronicle here on Thursday.

There are 24 strategic stake sale cases now. According to Gupta, strategic divestment is not for realising value. It is for unlocking value. A new or fresh strategic investor will drive much higher growth of the same company.

“All the 24 deals are progressing and in seven of them, expression of interest (EoI) has been floated. More and more companies will hit the market and Air India is one of them,” he said.

The DIPAM secretary declined to give any timeline on any of the deals, either through the IPO route or through strategic disinvestment. In addition, there are four railways IPOs also lined up.

The Union secretary, who has been credited with meeting and exceeding the disinvestment target of 2017-18, which currently stands at Rs 92, 500 crore against an estimated Rs 72,500 crore, feels the FY19 target of Rs 80,000 crore is in no way a modest one.

He said in the last five years (except 2016-17 and 2017-18), the average divestment stood at Rs 20,500 crore in 6-7 transactions, which makes this nearly four times the size.

Gupta believes that for listing CPSEs, size does matter. It would only enhance their value and it is for this reason that the government has decided to adopt the merger route of the three insurance companies — United Insurance, National Insurance and Oriental Insurance, before listing them.

There was an announcement in last year’s budget that there would be creation of value in the hands of PSEs by permitting them to use the merger and acquisition (M&A) route with economic rationale, in addition to time-bound listing of promising CPSEs.

Listing very small CPSEs, which have low float in the market, will not be a correct exercise, said Gupta, adding that there has to be size when you go to the market. “We had a clear roadmap that we would be listing our insurance companies,” he said. 

“When we started the process of listing, we realised that these three insurance companies prima facie were working in three geographical areas, competing with each other,” Gupta  said.

“There was a strong basis to synergise their operations for much higher economic value creation and higher gr­owth. We have listed the big insurance companies and in case of these 3 small companies, the department of financial services seemed to have found justification in first merging them in line with the M&A policy anno­u­nced and then we are comm­itted to list them,” said the DIPAM secretary.

Asked if the merger could be time-consuming, he said it could be done in different ways through cash or swap. “We will see what is the best value proposition,” he said.

DIPAM would strive to launch the debt ETF and the Fund of Funds (FoF) anno­unced in the Union budget. The department would also consolidate on the gains of the 2 existing ETFs – CPSE ETF and Bharat 22, he said.

“We realised a few years ago that equity ETF is the fastest and the most popular emerging asset class among investors. The West is ahead in showing us how the inve­stor tries to diversify the risk through an ETF instrument and still invests in equity. We already have 2 index funds. We have no plans to come out with more indexes, but we certainly have plans on more offerings around index funds or rebalancing them. FoFs, where it invests in oth­er type of funds, will deepen the market. The FoF will be created only to invest in designated ETF funds. It will be treated as an equity investment and will target nearly six crore active folios in mutual funds,” Gupta said.

According to him, a debt ETF will pool the bond iss­ues of public sector firms and help them access funds at lower rates from the markets. In India, the corporate debt market is not well developed and it will raise fu­n­ds at lower rates for PSUs.

The cost of raising reso­u­r­ces at the hands of CPSEs will go down with a debt ETF, the DIPAM secretary said, which will raise their savings and push their economic activities. Asked about the likely launch of the debt ETF in the next financial year, Gupta said such instruments need a lot of time to be in the market and efforts would be made to lau­n­ch them as soon as possible. “It is a big exercise. We have just started working on it. We will conceptualise and explore it because such instruments need lot of working behind the scene. In Se­ptember 2016, we had started working on Bharat 22. We came out in August 2017. It is well validated in the market today, giving yields better than Sensex, Nifty, CPSE ETF,” said the senior official.