The new cabinet of Prime Minister Narendra Modi is making fearless attempts to make India great again. One such attempt is initiated by our new Finance Minister. Mrs Niramala Sitharaman is seeking help from consultancy firms for assistance in divesting assets of public sector companies. The finance ministry has undertaken the daunting task of executing divestments target of worth Rs. 90,000 crores in FY20.
The finance ministry is reworking their strategies to speed up the process of divestments. This is because the sale process of non-core assets of Central Public Sector Enterprises (CPSE) has been sluggish in the past years. There was no stipulated timeline for the strategic sale procedure.
The ministry concluded, that the sale process should be executed within 4 months of issuance of documents to the investor. However, if the CPSE is relatively larger, then the timeline of the process will be extended to 6 months. Air India, one of the bigger CPSE, should complete the strategic sale within 6 months. These 6 months starting from the issuance of Preliminary Information of Memorandum (PIM) about the company.
Request for Empanelment
The Department of Investment and Public Asset Management (DIPAM) has raised a request to enrol consultancy firms in the strategic sale process. They have asked the consultancy firms or any firm engaged in transaction advisory services, project management or asset monetization to empanel. The consultant firm would assist DIPAM in preparing strategies to monetize assets. Strategic sale of assets like land and building and administer techno-economic feasibility studies of all these assets will be a part of the firm’s contribution.
Furthermore, the firms will also have to provide end-to-end transaction advisory services. The firm would also be assisting in finalizing the model for monetizing and conducting bid process and bidding documents required for the same.
The consultancy firm should have handled at least 5 transaction advisory projects in the last 10 years. This should be in respect of financial assets like land and building. Either this or an experience in real estate investment trust listing would make the cut. Moreover, the firms having experience in monetizing of property assets of known public or private organizations can also apply.
By 1st July 2019, the eligible firms are obliged to submit the bid. Initially, the selected firms would assist DIPAM for one year which can be further extended.
The non-core assets taken into consideration for divestment are sub-optimally utilized. This can be converted into greater financial leverage by monetizing them. Thus, DIPAM is planning on the strategic sale of shortlisted CPSEs in the current fiscal. They have already classified 35 CPSEs who are profitable yet loss-making companies which can go for strategic selling.
CPSEs shortlisted for strategic sale
The companies shortlisted for strategic sale include BEML, Air India, their subsidiary AIATSL, Scooters India, Bharat Pumps Compressors, and three steel units of SAIL. The companies who have been approved for outright sale are Hindustan Fluorocarbon, HLL Life Care, Roof India, and some units of Cement Corporation of India and ITDC.
The strategic sale process started back in October 2017 when Hindustan Prefab was in the pipeline for sale. Other companies like Pawan Hans, Bharat Pumps and Compressor Ltd, and Hindustan Fluorocarbons Ltd were issued PIMs in April 2018. The same was issued for Hindustan Newsprint and Scooters India in March 2018.
DIPAM raised Rs. 15,914 crores from strategic sale of a stake in public sector units in FY19. Whereas, in total from CPSEs disinvestment Rs. 84,972 crores were raised. The amount raised through strategic sale amount is a part of disinvestment proceeds of the country. In the current fiscal year, the government has raised Rs. 2,350 through disinvestment transactions.
This committee will identify the CPSEs to be divested and they will take the recommendations only from NITI Aayog. However, Finance Minister Nirmala Sitharaman will sanction the final call.