Smaller PSUs languish as govt chases big ticket sell-offs

NEW DELHI: Privatisation of smaller PSUs seems to be stuck for a variety of reasons including the administrative ministries’ lethargy on moving the relevant files and on issues such as restructuring. The government’s preoccupation with big ticket sell-offs is also seen in some quarters as a factor slowing down the smaller transactions.
So while the disinvestment ministry is working overtime to get Hindustan Petroleum and Bharat Petroleum on the sell-off block, privatisation process of companies such as Hindustan Organic Chemicals is stuck.
Other companies which are seeing a relative slowdown in the process include Hindustan Copper which has been put on the block for the second time, Metallurgical and Engineering Consultants (India) (Mecon) and Engineering Projects India.
Privatisation of two mid-sized PSUs, National Fertiliser, one of the most profitable fertiliser maker in public sector, and trading company STC, is stuck. NFL has come up against lack of progress on the fertiliser policy front and things are moving very slowly on STC.
Newsprint and paper companies Hindustan Newsprint and Nepa has been in the sell-off mode now for some time. The government is currently pursuing privatisation of 32 PSUs and these include about a dozen small, and in some cases loss making enterprises. Others on the sell-off list include Sponge Iron, Hindustan Cables, Hindustan Salt and Instrumentation.
The disinvestment ministry has sought to speed up these transactions by prescribing timelines for each stage of the sell-off. The ministry points out that its previous experience with timetables has been fairly successful. Setting timelines also involve fixing responsibility with the secretaries of the administrative ministries.
The problem in each sell-off is different. While it may be financial restructuring in Hindustan Organic Chemicals, in the case of Mecon, it has been organisational recast.
Hindustan Copper had to be given a comprehensive revamp package earlier this year, so as to attract suitors. A further capital restructuring may be required to sweeten the deal. For instance, the current thinking is that the Rs 200 crore preference share capital on the books of the company should be converted into equity capital. A final view would be taken before the transaction documents are finalised and financial bids invited.
Hindustan Organics sale has been held up as the finance ministry is required to take a tough call on loans outstanding on the books of the company. These are borrowings from the market backed by government guarantee and the finance ministry has been deliberating on a proposal prepared by the advisors for three months now.
The company has about Rs 400 crore loans outstanding in its books and the bidders are not keen to take the company with the outstanding loans. For the government, it is not an easy call to take liability for loans taken from the market. Government loans to PSUs can be written off or converted into equity.
Mecon privatisation cannot go forward until the steel ministry and the company finalises an organisational recast. The government had received rather tepid response to the invitation of expression of interest a few months ago. NFL is stuck as the group of minister on long term urea pricing policy is yet to meet and take a decision.
The fertiliser minister SS Dhindsa and Planning Commission deputy chairman KC Pant had desired in May that the financial bids should not be invited prior to finalisation of the policy. At that time, it was felt that the policy would be in place by July end.
STC sale can go forward only after the company sorts out the lease agreements with all the occupants of its properties, particularly those occupying space in its headquarters in the city centre.
In companies such as Nepa and Sponge Iron, land issues have held up sell off. The disinvestment ministry has sorted out the issues in Nepa and finalised transaction documents almost a month ago. The financial bids haven’t yet been called, apparently, because the annual statements are still being finalised.