How to Quickly Privatise 300 PSUs Without Selling Any Govt Shares!
Is there a privatisation model that could avoid pitfalls? Can PSUs be privatised without selling any govt shares?
Video Producer: Shohini Bose
Video Editor: Vivek Gupta
Cameraperson: Athar Rather
The Narendra Modi government has electrified the stock market by its promise to “privatise all non-strategic public sector companies.” Even in strategic sectors, like atomic energy, space, power, defence, telecoms, transport, oil, insurance, banking, coal and minerals, it intends to own just three or four companies in each sector, getting rid of the rest.
In simple numbers, the government has promised to sell nearly 300 public sector companies! This could unlock up to half a trillion dollars (Rs 35-40 lakh crore) of investible resources for the state.
No surprise, then, that the stock market jumped nearly 10 percent in less than a week after the Budget, shocked and awed by this ambition.
A Process Fraught With Severe Pitfalls
But hold on. All of this is easier said than done. Remember, in seven years, the Modi regime has not managed to sell even one public sector company, simply because the whole process is fraught with severe pitfalls:
- Politically, it shall be accused of selling the family silver to big domestic cronies or “neo-colonialists,” aka giant western corporations that are modern clones of East India Company.
- Assets have to be fairly valued, which is a controversial, subjective process, easily challenged in courts and vulnerable to charges of corruption. Often, as with Air India, the overhang of debt makes the whole deal unviable unless the government bites the bullet and waives off thousands of crores. Or, as with BPCL, some of the strategic assets on the balance sheet need to be ripped out before the company can be sold. The net result, of course, is “no sale” for years on end.
- Workers hate privatisation, fearing layoffs and adverse working conditions. It’s critical to get their buy-in with incentives, generous stock options, or voluntary exit packages.
- Bureaucrats simply do not have the skill sets or competence to pull off a quintessentially market-driven and complex merger or acquisition. As always, they are highly suspicious of professional talent.
Promise of Such Massive Privatisation – Aborted at Birth?
So, it’s a gigantic task to sell even five PSUs in one year. But even at this optimistically accelerated rate of sale, it would take the government sixty years to sell 300 companies!
In other words, the promise of such a massive privatisation – nearly half a trillion dollars – is aborted at birth. Dead. Over. Out.
Or is there another model of privatisation that could avoid the deadly pitfalls? Can, for instance, public sector companies be privatised without selling a single government share? Yes We Can.
The Maruti Model of Disinvestment
The clue to this seemingly impossible feat is embedded in the ‘Maruti model’ of disinvestment, perhaps the most successful privatisation ever. In the early 1980s, the government kept majority shareholding, selling 26 percent to Suzuki, BUT gave Suzuki greater control over day-to-day management.
Over the next decade, the government slowly also transferred over 50 percent ownership to Suzuki, followed by a public listing which was underwritten by Suzuki at Rs 2,300 per share. Bingo, the government made a tremendous ROI (return on investment).
How to Privatise 300 PSUs in Under a Decade?
So, now you can figure out how to “do the Impossible” and privatise 300 banks/companies in under a decade:
- Begin by selling a minority stake of 26 percent to pedigreed corporations or a group of stellar professionals.
- Convert the government’s own equity to 10-year Compulsorily Convertible Preference Shares (CCPS), which are separately listed; remember that CCPS are equal to “equity” under Indian laws, so, the government’s economic ownership shall stay fully intact after such a conversion, but it will lose its voting rights, thereby allowing the new controlling owner to take charge without the government crimping their management.
- And slowly, the government should exit its stake, over several years, as the value of the company spikes under the new professional management.
Everybody would live happily ever after!
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