They say a banker is someone who will lend you money if you can prove you don’t need it. It is time we had a disinvestment version of the old quip. How about: “A government should privatise when it doesn't need the money?” Or, “A country should sell stocks in state-owned companies when the market wants it, not when the government does.”
Thereby hangs India's disinvestment story. If this was a Bollywood/Hollywood saga, we would have a grim poster featuring Prime Minister Narendra Modi, Finance Minister Nirmala Sitharaman, and Commerce Minister Piyush Goyal facing three different directions in the middle of large bundles of falling shares of public sector companies with a suitable tagline: “Damned if they do, damned if they don’t.”
Market Has Mood Swings
The Life Insurance Corporation of India (LIC), the one-time state-monopoly-turned-haggard-stock market-laggard has lost Rs 1,20,000 crore in market value since it listed on the stock exchanges, bruised by US interest rates, battered by the Russia-Ukraine war and smothered by uncertainty over both market mood and presumably, its future performance. It is now at Rs 751 a share, down 14% since listing and down from a high of 918 a share, and even further below what 123 anchor investors paid – Rs 949 a share.
We can argue with common sense, as some brokers do, that LIC’s valuation is determined by the huge volume of blue chips it holds as a top dog institutional investor. And naturally, when the stock market slumps, LIC, as a barometer of sorts, will follow. Anchor investors are nearing the end of a compulsory lock-in period, and hence, the market believes there is a lot of supply ahead while demand is low.
LIC is itself still toting up its embedded value again after estimating it at Rs 5,39,000 crore in September last year. Its current market value at Rs 4,76,000 crore shows a big dent from that level.
Left-wing trade unions and activists who cribbed about family jewels being sold off cheap may now be told that the market is not excited. However, the way to look at this is through the prism of disinvestment details and economic policies, because we know the market is a fickle mistress known to have mood swings.
Govt & Bureaucracy Hold the Strings
The government aims to fetch Rs 65,000 crore from stake sales in the year to March 2023, sharply down from Rs 1,75,000 crore in the previous year. Of the 2021-22 target, only 8%was achieved. The LIC sale is fetching Rs 20,560 crore, a big chunk of the scaled-down target for the current year. Petroleum refiner BPCL's disinvestment has now been called off, while IDBI Bank, Bharat Earth Movers Ltd, Container Corporation of India and Shipping Corporation of India are among others standing in a shaky sell-off queue.
So, what ails the slow pace of sell-off or the market appetite? In simple terms, many public sector undertakings have shares listed, but their management and behaviour are tied to the apron strings of the government, or to a bureaucracy that makes long-term competitiveness iffy.
Oil refining companies cannot easily pass on global price increases because that would literally fuel inflation. Other companies have policy-level hurdles visible to sharp analysts, such as land prices or real estate hassles. Also, as long as management control remains in the hands of bureaucratic babus or their own corporate sidekicks in the public sector companies, corporate democracy may be in doubt.
Even monopolistic cash-rich giants, such as GAIL and ONGC, are being questioned by analysts who are tracking their shares. One says they are “very inefficient” companies that make reckless investments that do not create shareholder value, and also fail to capitalise on market opportunities.
In another BJP era, the government was luckier and smarter. Under Prime Minister Atal Behari Vajpayee's rule, the then-disinvestment minister, Arun Shourie, had successfully privatised aluminium miner BALCO, the overseas telecom monopoly VSNL and Hindustan Zinc Ltd, but such sales require huge underlying assets in addition to political will.
Air India Sell-Off Is More Symbolism than Pride
The world has also changed since then. The global financial crisis of 2008 left the Western financial system bruised – and lapping up state assets in developing countries like lollipops is no longer a juicy option. Private or institutional investors buying smaller stakes seems more in vogue than global giants lapping up strategic or controlling stakes in asset-rich companies. And why should mutual funds pick up public sector company shares when handsome young startup unicorns offer an emerging future than a fading past?
Whatever opportunity is left in ceding management control can be blocked by trade unions going to courts, as has been witnessed in some cases. Or, as in the case of Pawan Hans privatisation, financial improprieties by buyers have been suspected, leading to a stalemate of sorts. Or, at least, a prolonged delay.
The Narendra Modi government may pride itself on the privatisation of Air India to its one-time founders, the Tatas, but that is more about symbolism than pride.
All in all, you could say in ‘babu-speak’ that there is a 'case-by-case' situation. But it is equally true that this is not the world market of the 1990s when we had the fairy-tale situation of global players wanting an easy juicy piece of the privatisation pie. At that time, India was busy preparing the national mood for sell-offs. The mood is here now, but not the market, not to speak of case-by-case hurdles.
Method Over Adventure
LIC's initial public offer of shares was partially rescued by a structured discounted offer to its 290 million policyholders. But policy-holders who got the share at Rs 889 apiece must be ruing their decision. Yesterday's discount is now today's premium.
Finance Minister Nirmala Sitharaman says retail investors are now acting like shock absorbers in the stock market. If the LIC experience is any indication, the government may invite accusations of playing a pyramidical Ponzi scheme of its own to lure unsuspecting retail investors into the disinvestment process.
The honeymoon was long over for disinvestment. Now even the marriage with investors seems to be on the rocks. True, it is not all the Modi government's fault. But it would do well to look beyond rhetoric into its own behaviour. Considerable time and resources have been wasted in adventures such as the failed demonetisation of high-value notes, a bureaucratic framework for resolving bad loans in public sector banks, and political gambles over withdrawn farm laws. Imagine how the market could have provided opportunities if these missteps had been avoided.
Both politics and business are full of ifs and buts, but it always pays to be methodical rather than adventurist. Else ambitious targets fail, as we have seen in the disinvestment saga.
(The writer is a senior journalist and commentator who has worked for Reuters, Economic Times, Business Standard, and Hindustan Times. He tweets @madversity. This is an opinion article and the views expressed are the author's own. The Quint neither endorses nor is responsible for them.)
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