How has been the performance with regards to dividend and divestment?
We have already achieved Rs 65,000 crore as we speak. We had done about Rs 32,000 crore of divestment and rest is dividend and we have got three months to go yet. So we would be closer to our target both sides on dividend as well as on divestment. But we have to keep in mind this is a ballpark figure because there will be a plus minus always depending upon how much we are able to do for example in case of LIC. We had to actually condition our initial IPO to a level which could be actually digested in the market.
This is a good time to come up with OFS because if I look at the companies some of the defence and railway stocks, the government ownership is high. These stocks have got massively rerated in this year. So considering the valuation and the demand dynamics for defence and railway stocks it has been a year of PSU rerating, is not a good time to do OFS then?
I think that is also one of the reasons that as we said we should have a consistent dividend policy. The performance we have got for example the performance monitoring system in CPSEs where some of the measures that we have taken is that how is your market performance happening, what is the return on capital employed, what is happening to the asset turnover ratio, the return on equity, profitability and dividend records, are all important considerations when companies are giving bonuses to their management and the staff. So this is one part of the story.
The second is of course as I said that many companies have given buybacks and third we have promised,that we will not come out with any equity ETF and we have not come into the last two and a half years so because we have promised it and we did not come in.
Many times there is a demand for the stock as well, so you cannot say that the stock will not be available. But as I said that we will always keep in mind the interest of minority shareholders and will advise all the departments as well as the CPSEs to keep on adding value to their company, look at their performance and disinvestment strategy.
They should not be only chasing one budget number but they should also be meeting multiple objectives that we have stated.
LIC when it went public everybody in a sense, the analyst and including the press were of the view that it was very nicely priced. It left a lot of value on the table for minority shareholder but the stock is struggling. It is still below and way below its IPO price. Does that bother you that markets have not understood the real value of LIC?
I think there is a need for better communication between the LIC management and the analyst. LIC was something which was of course a big brand and a very big market share but there are a lot that people did not know about LIC because there was no such detailed granular information which was available and slowly that is coming out.
Embedded value, concept which was just not there now when the embedded value came out in LIC because of the listing the people have started now viewing it. They are looking it quarter by quarter how has embedded value growing, what is happening to that and LIC has also the exposures to general markets both bond markets, equity market, G-secs and they are also looking at how it panned out. They are looking at more granularly into the businesses and its growth. Some of the promises that they have made they have to push up their businesses on that.
If you look at other competitors like , you know their embedded value, their system. Their stock prices have also been discovered post listing over a period of time and not at the time when they were just listed. LIC management also is working on different aspects to it.
Are you advising on how to create shareholder value?
It is very important to communicate, understand, be in touch with the analyst and talk to the investors. This is something which we are insisting that the managements must do and it is the listing companies and many of these listed companies we encourage them to talk to the investors, communicate and I think we are seeing their results.
If you really look at the BSE CPSE and Nifty CPSE they have outperformed this year both BSE and Nifty respectively. Of course they have some catching to do so I believe the banks are also doing better.
There are several other things that are there but of course it happens every CPSE, every PSE will be not be impacted the same way because they are in different industry. So on the energy side there has been a little bit uncertainty because of the general situation but broadly corporate governance and performance as well as looking after investors has been the buzz word.
2022 has been such a great year for PSU minority shareholders that is absolutely incredible, now the general feeling is that government is really conscious of creating shareholder value and they are cognisant of important capital allocation, that is absolutely spending what is happening in that pocket. Where is stuck and are you confident that FY24 the stake sale will go through?
Yes, it will. I think structurally we have worked well with the Reserve Bank of India on that. We had lots of queries around who can participate, who cannot, what will happen, so we have kept it well open, it is a structure which is open except for of course not available for corporates or corporate NBFCs. Rest of the people it is an assuring kind of a thing. We have told that you are in, you can be in, we have told that this is the way the structure will happen and got more than 600 queries to our EOIs and they have been well answered. Now we are just waiting post New Year. 7th January is the last date for receiving EOIs and we hope to receive a good number EOIs.
Somewhere in FY24 first half can I say that divestment will see light of the day?
Yes, I think, given our process I think it takes about nine months if you really look at it from the point of view of release of EOI to closing, nine to 12 months is the time. I think it is not very difficult because the listed banks have got lots of information available so due diligence process is easier. There could be a vendor due diligence so therefore there would be a better information available in the data room and Reserve Bank of India is with us in terms of doing a proper fit and proper right in the beginning so that we do not face uncertainties while at the time of financial bids. Structurally although it is the first time that we have such a deal happening but we have worked hard on it and we will continue to see that it goes through.
How does the process work because normally there is a reserve price, now in case of a financial institution there may not be a reserve price, how will the bidding process work?
The reserve price actually is an internal assuring price for us, it is not revealed to them. It is also set post receipt of financial bids, we do not know about what the financials bids have been unlocked. It is a way of telling the bidders that they have to give the best price for the shares because these are public shares what we are dealing with so it is not my private property, it is the property of the people of India so therefore we get the best price and we make our process ensure that they would be really doing it that way. Reserved price is only a crossing price so that we said that below which we would be reluctant to sell.
What is the reserve price?
No. As I said that nobody knows now.
Internally, have you arrived at it?
No, no, no, it cannot be. As I said it has to be done post the financial bids so that nobody has a clue.
LIC has gone on record and has said that they would like to maintain minority stake in IDBI Bank, could that be a deterrent and why do you think LIC should maintain a stake in IDBI Bank?
LIC will be 19% post disinvestment. Government will be 15% post disinvestment. So the idea is that what is really the optimum size because you have to make the things competitive and you also have to see that we may have the up stake later. We feel that the value in future will rise and we can then exit at a certain stage later.
Are and SCI very complicated divestments, you have been trying to sell, you have been trying for the demerger but the process I think is just getting elongated, do you see something happening on SCI and BEML in next financial year?
Oh yes, because they are a bit difficult due to the land, real estate attached to an operating company. These are listed companies so the shareholders of SCI and BEML ought get the right value for their shares so by demerging what you are ensuring is that the real estate price of the land of the real estate which is capable of earning will be available to them. So therefore when you demerge every shareholder will get another share of the demerged company and that will be basically having a company with land so obviously the sum of parts will be far larger than if it is together.
Ultimately we have to value things. The demerger processes has to be done legally under the law and that has certain processes, first motion, second motion and public by shareholders meeting, creditors meeting and all of that in the listed companies is an essential part of that process.
It is largely like what happens in NCLT, the MCA follows the similar process so therefore I think once the demerger is done the value will be separated and then it will be listing done and then the financial bids will be possible.
So 12 to 18 months is a realistic timeline?
Incidentally we are doing actually a demerged company. The processes which will be followed we will be doing for the first time and we have actually a certain change of law also along with that to facilitate it.
For example, if you do a demerger in a case of government companies, then there will be a capital gains implications that has been taken off in case of strategic disinvestment. Similarly there could be a stamp duty implication at the time of demerger that will be an additional stamp duty merger. So that particular point has also been taken off through necessary changes in law. So therefore what we have really laid down over the past one-and-a-half years is the foundation for similar such demerger where unlocking of land value can also be undertaken.
Is completely off the table and why do you think BPCL strategic sale did not go through?
BPCL is not off the table, only the transaction, that particular EOI has been terminated and one of the reasons that we stated on our website was actually due to the kind of turmoil that energy markets had gone through both initially for energy transition and subsequently post Ukraine. I think given the size of that particular transaction there were not enough interest in the bidders to proceed further.
But BPCL could be revisited if global market conditions are stable?
Yes that is what we have said also.
You have listed , you have taken railway subsidiaries public, do you think most of the companies from the government kitty which could go public they have gone public and very few companies from the government stable are now eligible to go public or have the ability to stay in public domain?
Yes, I think largely because the government has not been expanding the commercial presence. It has been a consistent policy of different governments that we are not really getting into more of direct management of businesses or direct opening of industries.
Also, you have some of the very small companies which are not really worth going to the market because they do not have enough value or their technology is old or they are not really pursuing businesses which will sort of add a great value after listing. But there would be a few, like for example IREDA where a lot of hard work is being done on renewable energy space both in financing and other things. We are also looking at ECGC. These are the companies that we may go for.
Again I am using what is there in the public information. Can markets be reasonably confident that before FY23 financial year ‘s entire structure will go through?
No, I do not think that the entire structure will go through because it is a very large holding that we have. But we have clearly stated our intent to the market. We have done a public process of hiring advisers and road shows have been done and I think we have intent to bring the thing in tranches based on the advise that our merchant bankers will provide.
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