Does NDA's disinvestment policy look awfully similar to the one by UPA?

Unlike most other policy actions of the current government, the entire process of disinvestment, as being carried out, has similarities to the disinvestment policy of the UPA Government.

In recent days we have seen disinvestments of the Indian Oil Corporation and NTPC being announced.

Coal India -- the big disinvestment that was done at the end of the last financial year -- saw more than 50 percent of the issue being subscribed by Life Insurance Corporation (LIC). When the disinvestment programme was launched under the previous NDA government, the idea was to use potentially positive policy moves to disinvest or sell out companies in a manner where the ownership changes to the private sector and the 'government-owned' tag is removed from the companies. It would lead to greater professionalism in the way those companies were run and the process created value for the investors.

However, the entire disinvestment programme subsequent to the Coal India sale a few years ago, became one that destroyed the wealth that is imbedded in a PSU. This is because the stake-sales happened at discounted valuations, devoid of policy actions that would improve the valuations of those companies. Just to meet disinvestment targets, PSUs that are owned by the President of India and funded by tax payer money were and are proposed to be dumped at absurd valuations.

On the other hand, white elephants like Air India, BSNL etc are getting dole-outs from taxpayers' money.

There was an opportunity to disinvest out of companies like MTNL which would have helped the company not only survive, but also thrive due to its predominant presence in Delhi and Mumbai. It is difficult to digest that the government wants to continue to run an airline, a telecom company, etc, at a time when these companies are clearly not equipped to compete with the private sector.

Strategic sales like Maruti, Hindustan Zinc etc have helped these companies adapt and thrive by improving productivity.

However, the way disinvestment is being carried out today, makes me wonder what the thought process of the government is. 

The initial disinvestment of Coal India was done appropriately. During the second phase of stake-sale in Coal India, the Coal scandal was at its peak, global coal prices were falling and Coal India had been unable to increase production. The market sentiments also were bad. As a result, the stock price crashed to Rs 260 levels. Coal India had over Rs 50,000 crore of cash. The government should have just taken a Rs 10,000 crore dividend, which it eventually decided to take in the last quarter of 2013-14.

Then Coal India was disinvested once again a couple of months ago, without the investors of the previous FPO (Follow-on Public Offer) making any money.

Similarly, NTPC's Follow on Offer disinvestment was planned when the entire power sector was in doldrums.

NTPC's capacity addition was lagging and there were fuel price issues. The stake-sale was planned when the stock price was over Rs 200 and it fell to Rs 140 a share at the time of the disinvestment.

Now the Government has announced another disinvestment of NTPC when the price is Rs 140. What will the price of one NTPC share be when the disinvestment actually happens, is anybody's guess.

Similarly NMDC was dumped into the markets at a time when the iron ore mining ban issue was prevalent all over the country and iron ore prices globally were crashing. 

The better opportunity obviously is to sell high. The strategic sale of ITC will yield the government Rs 50,000 crore, get in over $8 billion of FDI and also reduce the pressure on the rupee. The remaining holding of Hindustan Zinc could also have been disinvested at extremely good valuations and can still be done.

It is extremely unfortunate that the thinking process has not changed and the same kind of disinvestment is being proposed.

There needs to be visibility on improved performance at the PSUs being disinvested so that the people who come into the FPOs make money and this gives them the confidence to invest in subsequent FPOs of Government Companies.

If every subsequent sale is at the same or lower price despite the markets having moved up a lot then this reflects badly on the entire process. 

Let's hope better sense prevails and disinvestment is not carried out just as a book balancing activity but a strategic one which seeks to create wealth for shareholders of the company.

Sandip Sabharwal is a fund manager who runs an investment advisory company. He can be reached at his website.