Tapping the cash-rich PSUs would be a better option than a forced disinvestment in under-valued stocks
As the government approaches the last quarter of fiscal 2013 in a scramble to balance its books, it is time for some heavy-duty action on the disinvestment front. There is considerable disquiet in the parent ministries of disinvestment targets such as SAIL, BHEL, NTPC, OIL, EIL, NALCO, etc as these PSU blue chips are trading at multi-year low valuation multiples. The ministries? angst is understandable but cannot be rationally justified as these PSU giants have fallen out of market favour for a variety of factors; some beyond their control, some their own making.
The finance ministry is leaving no stone unturned in its efforts to achieve this year?s target of R30,000 crore. It is banking on the support of LIC which saved it a major embarrassment last year during the ONGC issue. Much criticism followed that action of LIC, but it seems the insurer is ready with a bigger war chest and overt support from the government, which has increased the equity holding cap in a company to 30% only for it. So the modus operandi seems clear. Put up as many of these PSU for disinvestment as possible while LIC stands as the investor of last resort for these issues.
If R30,000 crore was all that the government was looking to garner this year, one wonders about the methods employed. A cursive glance at the list of issues up for divestment would indicate that they all belong to the infrastructure and heavy industry sectors which are reeling under the impact of slowdown. It is therefore clear that no amount of positive sentiment would lift their valuation multiples and share prices in the near term. Investors wait for firm signs of execution to be interested in them again. Why the government should put the family silver up for sale at such an inopportune time when they will fetch a pittance? If the government were to alternatively focus on cash-rich PSU which do not have massive capex plans, it would fetch the needed booty as well as save the ownership interest to be parted in better times.
The table above shows the PSUs that are among the most cash-rich, with minimum or no debt (indicated by negative net debt). They are unlikely to have massive capex requirements over and above the cash generated in the business in the foreseeable future. It is pertinent to note that government share holding is above 70% in all cases, which should encourage it to prod these companies to declare special dividends. Although dividends are inefficient due to tax considerations in the normal course, the government being the sovereign in this case pockets the tax as well benefiting immensely from this move.
The stated motive for divestment is to improve the transparency and efficiency of these PSU giants. LIC is not an activist investor and if it were to bail out all these issues, how will the goals of divestment be satisfied? The government can avoid parting with the family silver for a song, when other methods are available to tide over the temporary crisis.
The author is fund manger-PMS, Angel Broking
