Selloff story: Better PSU valuation now?

new delhi: is the disinvestment programme fetching the right kind of prices for the government? a comparison of the p/es fetched by companies like ioc, bpcl, hpcl, gail and vsnl during the earlier part-divestment nearly 10 years ago with the current p/e roster tells a curious story. part-divestment fetched lower p/es despite the near-absolute monopoly in sectors like telecom. ioc, for instance, fetched a p/e of 4.9 when mr manmohan singh decided to sell shares at the open market. fellow petro companies bpcl and hpcl fetched 5.7 and 5.9 while gail and vsnl got 4.4 and 6.0 respectively. in comparison, the strategic sales this time round fetched a p/e of 19 for balco, 12 for cmc, 37 for htl, 63 for ibp and 11 for vsnl. “in the case of modern food, the net worth was negative so the p/e was infinite,� said a senior government source. “clearly selling in small lots helped no one because the government got low values, there was no change in management and the market did not welcome the divestment.� there are several reasons why strategic sales have attracted better valuation. first, the strategic partners are usually companies with experience in the industry. the government can ask for a management control premium and, like in the case of ibp, the strategic sale can come with a public offering rider at the same price which helps improve market capitalisation. of course, the premium depends on the strategic interest in the business, as with the case of mart. although there is an agreement between the government and suzuki according to which “a pre-emptive right has been given to the japanese partner� the “consent� clause cannot be used unreasonably, said a senior government source. “the consent cannot be unreasonably withheld to block sale; it must hover aro-und market principles to help negotiate a fair value of the shares.� in maruti’s case, the management premium would be on converting suzuki’s part control to absolute control.