We look at divestment as overall value strategy: DIPAM Secretary

Union Finance Ministry’s Department of Investment and Public Asset Management (DIPAM) oversees strategic disinvestment and privatisation, minority stake sales and capital management of central public sector enterprises (CPSEs). In FY24, the revenue generated by the Central government through disinvestments and asset monetisation of CPSEs (miscellaneous capital receipts) was about ₹32,000 crore, way below ₹61,000 crore, the initial (Budget) estimate (BE) given in last year’s Union Budget. However, the dividend income received by the Central government from CPSEs in FY24 reached a record high of ₹63,749 crore. In an exclusive interview with Fortune India, Tuhin Kanta Pandey, DIPAM secretary, said the figures reflect the government’s focus on the health of CPSEs and the importance it gives to value creation and value optimisation strategy over disinvestment targets. 

How do you see the performance of DIPAM in terms of non-tax revenue generation through multiple ways including disinvestments and asset monetisation in FY24?

If you look at the CPSEs dividends, it has been about ₹63,000 crore. We have also got some ₹16,500 crore as disinvestment receipts. So, together about ₹80,000 crore has come strictly from DIPAM’s point of view. If you look at non tax revenue, the Revised Estimate (RE) for FY24 (as mentioned in Union Budget FY25) figure was almost ₹4 lakh crores, about ₹1 lakh crore more than the Budget Estimates. This has been substantial revenue, particularly from the dividend, profits, and other non-tax revenues. 

But, overall non-tax revenue includes RBI dividend also, right?

Yes, it (overall non-tax revenue) includes dividends from financial institutions, but the dividend I quoted earlier (₹63,000 crore) excludes dividends from financial institutions, including banks, insurance companies, and the RBI.

On one side we see calibrated dilution of equity stake in CPSUs, on the other we see increasing dividend income from CPSEs. In fact, this year’s dividend has been a record high. How do you explain this?

Increase in dividends is related to what is happening in these business enterprises. We have a clear strategy that emphasises the health of the enterprise, profitable growth, and dividends. We are for consistent dividend, not really looking for maximising dividends. We are talking about overall value creation for all stakeholders, not only the government as we now have substantial minority shareholders. In fact, we have 61 public listed entities where the Central government has a stake. If we add 16 listed public sector banks and four public sector listed insurance companies to this, there are 81 companies. The market cap of these 81 CPSEs was around ₹12 lakh crores three years ago, and it is now about ₹73 lakh crores. Some of them, like LIC and IREDA were listed in the last three years, nevertheless, (the value growth illustrates) the overall value maximisation, value optimisation and value creation strategy. This means we focus on an overall value strategy, not just on disinvestment.

How much funds have CPSEs set aside for their capex plans under the consistent dividend policy?

CPSEs have invested ₹3-4 lakh crore in a year out of their own resources, not government resources. Earlier it used to be about ₹2 lakh crore. It is quite substantial if you look at the overall capex of the government. For example, this year’s budget proposes ₹11.11 lakh crore capex spend and on top of it there is a ₹3.9 lakh crore, which in accounting terms is revenue but is actually given as grants to states for the creation of capital assets under the Centrally Sponsored Scheme (CSS). Although, it is a capital item given as a grant as far as the end user is concerned. The budgetary outlay of ₹15 lakh crore plus for capital formation does not include the public sector, because they are outside the consolidated fund. So, there is another ₹3-3.5 lakh crore that gets added.

Are we looking at more IPOs at the moment?

When we are thinking of IPOs we have to look at the size of the companies, and they must be profitable. We have certain guidelines. We have brought a large number of companies to the market which should have been listed. There could be a few more which we can look at as they grow. One of the important areas of new IPOs will emerge in terms of some of the subsidiaries of the CPSEs, which can be also listed. For example, Coal India is there, you may have subsidiaries to be listed. There is a big possibility of green energy companies within several of our energy companies. Whether it is NTPC, SJVN, NHPC, NLCIL, CIL, or ONGC, there are several such companies that are building up new green companies.These subsidiaries could be brought to the market, which would deepen the stock market and be a win-win for shareholders.

Has DIPAM given in-principle approval to any CPSE Boards for such IPOs?

Wherever it is needed (it will be given). In some cases, the boards are authorised to do it. Like Navaratnas and others, they are authorised. In other cases, they will require approvals and we are in a position to give it. We have granted in-principle approvals. For example, a company like TCIL, which has also got certain holdings in Bharti Hexacom, we recently encouraged them to go for listing. The listing has gone very well. TCIL could divest 15% of the shares in the IPO route. NTPC Green (IPO) is likely; they have appointed the advisors, they are looking at it.

The last major strategic disinvestment we heard of was Air India. What next?

We did have another one, Neelanchal Ispat Nigam Ltd, which happened thereafter. That has also gone very well. It was a steel plant in Orissa with a capacity of about 1 million tonnes. At the time of disinvestment, workers had not been paid, and the machines had been lying idle. With a year, the blast furnace has been up and running, workers are being paid, and a lot of investments are being made to expand the plant to a 5 million tonne capacity. We are looking at IDBI Bank, and hopefully they will be able to proceed soon.

Will IDBI disinvestment happen this year?

We hope so. We are expecting the fit and proper clearance from the RBI, which I believe is in quite an advanced stage. Once we get it, then we will have to have another process which involves due diligence by the bidders on the bank through virtual data rooms, where they look at the data, look at all those details, and then also finalise the share purchase agreement, the legal documents and so on. Only then will the financial bids be invited, and an RFP issued. Finally, the bids will be opened, followed by selection and completion of the whole process. Before setting timelines, one should understand that this is the first transaction of its kind. We are trying to divest equity in a bank on the basis of a bidding system, and this is happening for the first time.

Budget 2024-25 has seen substantial support given to BSNL. How should this be seen from a disinvestment point of view?

BSNL has been chosen taking into consideration different factors including the new PSE policy, which says that only a bare minimum of public sector enterprises will be retained. It was considered important to retain BSNL as it is considered to be a strategic sector. A lot of support was in any case necessary, because much of it involved government-guaranteed loans, so it had to do that. Also, a lot of new technologies are getting developed, the new 4G technologies, and BSNL has not gone for 4G so far.

There are at least half a dozen companies where the second stage of strategic disinvestment process is on. Why is it so time consuming?

Lot of issues need to be resolved, and every case is peculiar. Almost every case, barring very few, require mergers of some of the assets, which itself is a process and in many cases we have to take care of land issues because many of them do not have the proper titles, companies may be old, they haven’t taken care of that, so that has to be sorted out. When you are doing disinvestment, your documentation is expected to be fool proof.

The government has garnered ₹16,507 crore through equity dilution in FY24. What was the rationale for choosing those companies? Especially when PSU share prices are still going strong?

The value will keep rising. There is nothing called perfect timing. What you need to do is whenever you dilute the stocks in a company; don’t come out with another release of stocks very soon. You have to keep the pace because the companies keep accruing the business, and the new business also keeps coming, all of that getting reflected in their stock price. And if the company is growing, there are also capital gains to consider. In terms of dilution you can do it with some pace, which is also in the interest of the minority shareholders.

What is the status of the government’s land monetisation plans?

This is one area where the Department of Public Enterprises is mainly dealing with. All what we are saying is, in several of our strategic disinvestment transactions we have demerged the companies primarily to see wherever we have surplus land available inorder for future monetisation. Monetisation can be done, or taken up by the companies themselves or through another SPV called the national land monetisation corporations, which has also been created. It is being overseen now by the Department of Public Enterprises.

Budget 2024-25 has set a miscellaneous capital receipts target of ₹50,000 crore. Is it quite ambitious?

The (target) is from the miscellaneous capital receipt side. There is no specific number for disinvestment. It is an accounting number which is likely to come from different sources, including divestment and asset monetisation. Additionally, there is another target of ₹56,000 crore on the dividend side for CPSEs.

The dividend target for 2024-25 is lower than the 2023-24 achievement...

It’s ok. The point is dividends are also fluctuating. You do not know what is likely to come. If extra comes in, it comes in. These are estimates as you don’t know if every company will be able to provide a similar amount of dividend as before. Sometimes it could be more, sometimes less. As I mentioned, we have a consistent dividend policy. We are not maximising it. Some of the companies might need more money, hence retain it for their particular projects. In that case, they can even pay less than what is recommended.