DISINVESTMENT

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Contents
1 INTRODUCTION- THE CONCEPT ................................................................................................................................ 3
2 Privatization in India .................................................................................................................................................. 3
3 Then, what is Disinvestment? ................................................................................................................................... 4
4 What is the difference between Privatization and Disinvestment?.......................................................................... 5
5 DEPARTMENT OF INVESTMENT AND PUBLIC ASSET MANAGEMENT ....................................................................... 5
6 QUESTIONS AND ANSWERS....................................................................................................................................... 7
7 How successful is government in achieving the disinvestment targets? ................................................................ 14
8 Budget 2019 AND DISINVESTMENT......................................................................................................................... 15
9 Disinvestment and Economic Survey 2018 ............................................................................................................. 16
10 CURRENT AFFAIRS ............................................................................................................................................... 18
10.1 CCEA approves procedure and mechanism for Strategic Disinvestment ....................................................... 18
10.2 Asia Index launches S&P BSE Bharat 22 .......................................................................................................... 18
10.3 PSUs disinvestment: Centre rejects Niti Aayog’s disinvestment proposal...................................................... 19
10.4 Air India Disinvestment: Government Eyes $1 Billion From Air India Sale ..................................................... 19
10.5 Disinvestment: PSU share sale hits record high in 2018 ................................................................................. 20
10.6 Stake sale Plans for 2019 ................................................................................................................................. 20
10.7 Govt clears listing of seven CPSEs in effort to meet disinvestment target ..................................................... 21
10.8 Pawan Hans stake sale: Centre has ‘substantial’ interest, says disinvestment secretary............................... 21
10.9 FY19 Disinvestment: Land, Other Assets Of 9 PSUs Identified For Strategic Sale To Be Sold Separately ....... 21
10.10 Govt plans further disinvestment in headless NIA, GIC .............................................................................. 22
10.11 Disinvestment department to frame guidelines for sale of enemy shares ................................................. 22
10.12 Set aside divestment proceeds for sick PSUs revival: Parliamentary panel ................................................ 23
10.13 Govt to divest 5% in BEL .............................................................................................................................. 23
10.14 Disinvestment booster: ONGC board clears Rs 40-bn share buyback ........................................................ 23
11 SOME INTERESTING FACTS REGARDING DISINVESTMENT IN INDIA ................................................................... 24

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1 INTRODUCTION- THE CONCEPT
At the very basic level, disinvestment can be explained as just the opposite of investment.

“Investment refers to the conversion of money or cash into securities, debentures, bonds or
any other claims on money. As follows, disinvestment involves the conversion of money
claims or securities into money or cash.”

“Disinvestment can be defined as the action of an organisation (or government) selling or

liquidating an asset or subsidiary. It is also referred to as ‘divestment’ or ‘divestiture.’ In
most contexts, disinvestment typically refers to sale from the government, partly or fully,
of a government-owned enterprise.”

A company or a government organisation will typically disinvest an asset either as a strategic

move for the company, or for raising resources to meet general/specific needs.

Another related concept is of Privatization. Let us first delve deeper into concept of
privatization and then relate the same to disinvestment.

Privatization is a broad concept and its meaning goes slightly different in different countries.
Privatization generally refers to inducing private sector participation in the management
and ownership of Public Sector Enterprises.
In a narrow sense, privatization implies induction of private ownership in state owned
enterprises. It is the process of transferring ownership of a business, enterprise, agency,
public service or public property from the public sector (a government) to the private sector,
which usually operates for a profit.
Privatization was a global trend in the late 1980s and early 1990s to reform the loss making
and inefficient public sector enterprises.
In countries with many state-owned enterprises, including developing countries, post-
socialist countries, and countries of Western Europe, privatization is the transfer of enterprise
ownership in whole or in part from the state to private hands. This is often referred as
denationalization and destatization.

2 Privatization in India
In India the privatization strategy has been adopted in the form of disinvestment of
governments’ equity in public sector undertaking and also through the opening up of hitherto
reserved areas for the participation of private enterprises. With the growing problem of large-

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scale fiscal deficits faced by government in recent years, the issue of privatization has been
brought to the forefront.
In 1990-91, the huge fiscal imbalance and growing balance of payments crisis have forced the
country to approach the IMP for huge repurchase facilities and also to the World Bank for
structural adjustment loan. While giving such assistance, both the IMP and the World Bank
had linked it with certain ‘conditionalities’ covering differing sectors of the economy for their
gradual opening up and liberalisation.
Accordingly, the new Industrial Policy, 1991 was formulated to meet some of these
conditionalities. This new policy has emphasized the increasing role and importance of the
private sector in developing the industrial health of the economy and thereby adopted
various measures.
Some of these important measures included abolition of licensing in all industries excepting
18 industries (subsequently reduced to 15 industries), reducing the number of industries
reserved for the public sector from 17 to 8, scrapping of the MRTP limit, free entry of foreign
investment and technology transfer etc.
In recent years, the most specific step that has been identified and adopted by the
Government in the issue of privatization is the divestiture, i.e., through selling of equity of
public sector enterprises to mutual funds, financial institutions and finally to the private
sector.
Though privatization and disinvestment are terms that are used interchangeably there is a
difference between them with regard to the ownership. Disinvestment may or may not be
an outcome of privatization.

3 Then, what is Disinvestment?

Regardless of the ownership (i.e. public or private), each firm comprehend the value of
expansion. Simply, growing is expected by almost all the companies in the globe. In
disinvestment, the same transformation process happens like in privatization while retaining
26% or, in some contexts, 51% percent of share right (i.e. the voting power) with the public
sector organization. The rest is transferred to the desired partner. In this 26% or 51% of
holding of the voting stake, all the vital decisions remain with the public sector organization.
Comparatively high inflow of private capital, capacity enhancements in entering into new
markets and increased competition are seen as advantages of this strategy. In relation to
disadvantages, loosing of the public interest, fear for foreign controlling power, problems in
relation to employees are seen as disadvantages of disinvestment.

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4 What is the difference between Privatization and Disinvestment?
Privatization involves transforming the ownership of a public sector business to the private
sector known as strategic buyer.
Disinvestment is also a transformation process that happens while retaining 26% or, in some
contexts, 51% percent of share right (i.e. the voting power) with the public sector
organization. The rest is transferred to the desired partner.
In privatization, full ownership is transferred to the strategic partner but in disinvestment,
usually, some % of share is retained with the government company, and the rest is
transferred to the strategic partner.

5 DEPARTMENT OF INVESTMENT AND PUBLIC ASSET MANAGEMENT

The Department of Disinvestment was set up as a separate Department on 10th December,
1999 and was later renamed as Ministry of Disinvestment form 6th September, 2001.
From 27th May, 2004, the Department of Disinvestment is one of the Departments under the
Ministry of Finance.

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The Department of Disinvestment has been renamed as Department of Investment and
Public Asset Management (DIPAM) from 14th April, 2016.

Vision
• Promote people’s ownership of Central Public Sector Enterprises to share in their
prosperity through disinvestment.
• Efficient management of public investment in CPSEs for accelerating economic
development and augmenting Government’s resources for higher expenditure
Mission
• List CPSEs on stock exchanges to promote people’s ownership through public
participation and improving efficiencies of CPSEs through accountability to its
shareholders.
• To bring in operational efficiencies in CPSEs through strategic investment, ensuring
their greater contribution to economy.
• Adopt a professional approach for financial management of CPSEs in the national
interest and investment aimed at expanding public participation in ownership of CPSEs.
Mandate
As per the present Allocation of Business rules, the mandate of the Department is as follows:
• All matters relating to management of Central Government investments in equity
including disinvestment of equity in Central Public Sector Undertakings..
• All matters relating to sale of Central Government equity through offer for sale or
private placement or any other mode in the erstwhile Central Public Sector
Undertakings.
Note: All other post disinvestment matters, including those relating to and arising out of the
exercise of Call option by the Strategic Partner in the erstwhile Central Public Sector
Undertakings, shall continue to be handled by the administrative Ministry or Department

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concerned, where necessary, in consultation with the Department of Investment and Public
Asset Management (DIPAM).
• Decisions on the recommendations of Administrative Ministries, NITI Aayog, etc. for
disinvestment including strategic disinvestment.
• All matters related to Independent External Monitor(s) for disinvestment and public
asset management.
1. Decisions in matters relating to Central Public Sector Undertakings for purposes
of Government investment in equity like capital restructuring, bonus, dividends,
disinvestment of government equity and other related issues.
2. Advise the Government in matters of financial restructuring of the Central Public
Sector Enterprises and for attracting investment in the said Enterprises through
capital market.
• The Unit Trust of India Act, 1963 (52 of 1963) along with subjects relating to Specified
Undertaking of the Unit Trust of India (SUUTI).
Now let us try to understand different aspects of Disinvestment through the following
Questions and Answers.

6 QUESTIONS AND ANSWERS

Question 1: Why does the Government disinvest CPSEs ?

Answer: The objectives of disinvestment are:

1. Improve corporate governance.

2. Realize the productive potential of CPSEs through improved efficiency and profitability.
3. CPSEs’ wealth should rest in the hands of the people.
4. Raise resources for the Government.

Question 2: How does disinvestment help CPSEs and the Government?

Answer: Disinvestment helps CPSEs and in the Government the following manner:

1. To promote people’s ownership of Central Public Sector Enterprises (CPSEs) to share in

their prosperity through disinvestment.
2. The process of listing of CPSEs on stock exchanges facilitates development and deepening
of capital market and spread of equity culture.
3. Helps raise budgetary resources for the Government.
4. Enables efficient management of public investment in CPSEs for accelerating economic
development and augmenting Government’s resources for higher expenditure.
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Question 3: What are the Salient features of Current Disinvestment Policy?

Answer: The salient features of the current disinvestment policy are:

• Public Sector Undertakings are the wealth of the Nation and to ensure this wealth rests
in the hands of the people, promote public ownership of CPSEs;
• While pursuing disinvestment through minority stake sale in listed CPSEs, the
Government will retain majority shareholding, i.e. at least 51 per cent of the
shareholding and management control of the Public Sector Undertakings;
• Strategic disinvestment by way of sale of substantial portion of Government
shareholding in identified CPSEs upto 50 per cent or more, alongwith transfer of
management control.

Approach for Disinvestment

(a) Disinvestment through minority stake sale

On 5th November 2009, Government approved the following action plan for disinvestment
in profit making Government companies:

(i) Already listed profitable CPSEs (not meeting mandatory shareholding of 10 per cent
which stands revised to 25 per cent) are to be made compliant through offer of sale
by the Government or by the CPSEs through issue of fresh shares or a combination
of both;
(ii) Unlisted CPSEs with no accumulated losses and having earned net profit in three
preceding consecutive years to be listed;
(iii) Follow-on public offers would be considered, taking into consideration the needs
for capital investment of CPSEs on a case by case basis, and the Government could
simultaneously or independently offer a portion of its equity shareholding;
(iv) All cases of disinvestment are to be decided on a case by case basis;
(v) The Department of Investment and Public Asset Management (DIPAM) is to identify
CPSEs in consultation with respective administrative ministries and submit proposal
to Government in cases requiring offer of sale of Government equity.

(b) Strategic Disinvestment

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(i) To be undertaken through a consultation process among different
Ministries/Departments, including NITI Aayog

(ii) NITI Aayog to identify CPSEs for strategic disinvestment and advice on the mode of sale,
percentage of shares to be sold of the CPSE and method for valuation of the CPSE.

(iii) The Core Group of Secretaries on Disinvestment (CGD) to consider the recommendations
of NITI Aayog to facilitate a decision by the Cabinet Committee on Economic Affairs (CCEA)
on strategic disinvestment and to supervise/monitor the process of implementation.

(c) Comprehensive management of GoI’s investment in CPSEs

• The Government recognises its investment in CPSEs as an important asset for accelerating
economic growth and is committed to the efficient use of these resources to achieve
optimum return.
• The Government will achieve these objectives by adopting a comprehensive approach for
addressing critical inter-linked issues such as leveraging of assets to attract fresh
investment, capital restructuring, financial restructuring, etc.
• Different options for optimal utilization of Government’s investment in CPSEs are assessed
to adopt suitable investment management strategies to improve investors’ confidence in
the CPSEs and support their market capitalization which is essential for raising fresh
investment from the capital market for their expansion and growth.
• Efficient management of investment in CPSEs are ensured through rationalization of
decision making process for all related issues and seamless inter-departmental
coordination in the matter.

Question 4: What is the current strategy for investment management of CPSEs?

Answer: As highlighted in FM's Budget Speech, the Government recognises its investment in
CPSEs as an important asset for accelerating economic growth and is committed to
the efficient use of these resources to achieve optimum return on its investment.

Keeping the above objectives in mind, the current investment management strategy of the
Government focuses on efficient management of GoI's investment in CPSEs, disinvestment
through minority stake sale in listed CPSEs, listing of profitable CPSEs and strategic
disinvestment of CPSEs. These strategies are helping the Government to move in the
direction, where best possible outcomes are expected in terms of improving investors'
confidence in CPSEs and supporting their market capitalization essential for raising fresh
investment for expansion and growth.

Question 5: What are the methods of disinvestment of minority stake in CPSEs?

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Answer:

1. Initial Public Offering (IPO) – offer of shares by an unlisted CPSE or the Government out
of its shareholding or a combination of both to the public for subscription for the first
time.
2. Further Public Offering (FPO) – offer of shares by a listed CPSE or the Government out of
its shareholding or a combination of both to the public for subscription.
3. Offer for sale (OFS) of shares by promoters through Stock Exchange mechanism –
method allows auction of shares on the platform provided by the Stock Exchange;
extensively used by the Government since 2012.
4. Strategic sale – sale of substantial portion of the Government share holding of a central
public sector enterprise (CPSE) of upto 50%, or such higher percentage as the competent
authority may determine, along with transfer of management control.
5. Institutional Placement Program (IPP) – only Institutions can participate in the offering.
6. CPSE Exchange Traded Fund (ETF) – Disinvestment through ETF route allows simultaneous
sale of GoI's stake in various CPSEs across diverse sectors through single offering. It
provides a mechanism for the GoI to monetize its shareholding in those CPSEs which form
part of the ETF basket.

Question 6: What are the steps in the CPSEs’ disinvestment process ?

Answer: The policy of minority stale sale has a evolved over time and is based on a
transparent decision making process through inter-Ministerial consultations. The current
disinvestment process involves the following steps:

1. In-principle consent by the Administrative Ministry of the CPSE concerned;

2. Approval of the proposal to disinvest by CCEA;
3. Constitution of an Inter-Ministerial Group (IMG) with the approval of the Finance
Minister to guide and oversee the disinvestment process;
4. IMG appoints Advisers for the transaction including Merchant Bankers/ Book Running
Lead Managers (BRLMs)/ Legal Advisers;
5. Presentation by BRLMs before High Level Committee (HLC) on valuation;
6. HLC recommends price band/ floor price to alternative mechanism (AM) taking into
consideration the recommendation of the BRLMs;
7. Approval by AM of recommended price band/ floor price, method of disinvestment,
price discount for retail investors, etc.

Question 7: What are the advantages of OFS process?

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 Answer: OFS has the following advantages over FPOs/IPOs:

Cost effective: OFS route involves less formalities. Unlike IPOs/FPOs, the promoters of the
issue under OFS are not required to file Draft Red Herring Prospectus (DRHP). Also, there is
no need to get the application forms printed. It also saves big advertisement expenses.

Saves Time: This route involves sale of shares in a single trading day and that too, during the
normal trading hours i.e. between 9:15 a.m. and 3:30 p.m. The promoters can announce their
intention of share sale even one trading day prior to the opening of the offer.

Transparency: OFS process is quite transparent as it is done on real-time basis with a system
based bidding platform and involves least amount of paperwork.

Multiple Orders: Under OFS, there is no restriction on number of bids from a single buyer.
This facility is not available in FPOs/IPOs.

Question 8: What are the steps taken by the Government to accelerate disinvestment
process ?

Answer : Rolling plan:

1. As the earlier system of annual plans for disinvestment of CPSEs provided scope for price
hammering through the announcement effect, this arrangement has been replaced with
a system of rolling plan.
2. Making a departure from the system of annual plan, the Government has started creating
a pipeline of proposals by identifying some CPSEs for minority stake sales across various
sectors of the economy.
3. The underlying strategy is to keep the shares readily available for transactions, to take
advantage of the market conditions without any loss of time with an element of surprise
for the market players. This helps in minimizing price hammering during disinvestment of
CPSEs.
• T-1 dispensation for Offer for Sale (OFS):
1. Under the earlier dispensation of T-2 notice period (T being the transaction day) for an
OFS transaction, there was enough scope for price hammerings during the trading in the
stocks on T-1 day, i.e. the day immediate before the OFS issue.
2. Based on the suggestion made by the Department, SEBI vide its circular dated 15th
February, 2016 has reduced the notice period for an OFS transaction from T-2 to T-1. In
the other words, the OFS transactions takes place on the very next day after the notice
for the issue has been given to the stock exchanges.

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 3. This change is now helping in minimising price hammering between the notice day and
the transaction day, taking place earlier under the T-2 dispensation.

• Need for evolving an Equity Culture:

1. CPSEs’ disinvestment programme has been made more inclusive by following an
approach to reserve 20 per cent of shares on PSUs-OFS transactions with a price discount
upto 5 per cent for retail investors.
2. Vide SEBI’s circular dated 15th February, 2016, the retail investors have also been allowed
to bid in an OFS issue on T+1 day so that their interest are suitably protected by providing
them sufficient time for arranging funds and encouraging them for participating in CPSEs’
disinvestment program.
Question 9: Has the Government issued any guidelines on “Capital restructuring of CPSEs”
?

Answer: In line with announcement made in the budget, comprehensive guidelines on

“Capital Restructuring of CPSEs” have been issued on 27.05.2016 by the Department of
Investment and Public Asset Management (DIPAM). These guidelines supersede all previously
issued guidelines on the subjects under reference by various Ministries/Departments from
time to time and comprehensively deal with the inter-related issues on payment of dividend,
buy back of shares, issue of bonus shares and splitting of shares.

Question : What are the salient features of Capital Restructuring Guidelines ?

Answer: Some of the salient features of these Guidelines are as follows:

1. These guidelines shall apply to all corporate bodies where GoI and/or Government
controlled one or more body corporates have controlling interest. It will not apply to body
corporate which is prohibited from distribution of profits to its members, e.g. companies
set up under section 8 of companies Act, 2013 or under extant provision of any other Act
or which has accumulated losses.
2. The focus of these guidelines is on optimum utilization of funds by CPSEs/Government to
spur economic growth. The CPSEs will have a professional look at the surplus funds
available with them and if they do not have plans to deploy them optimally for business
purposes, they should explore other options of capital restructuring. The CPSEs have been
given the flexibility to adopt suitable investment management strategies for raising fresh
investment from the capital market for expansion and growth.
3. The GoI’s nominee director(s) on the board of CPSEs have been made more responsible
by ensuring that GoI’s interests as a majority shareholder investor are to be duly
represented through them in the CPSEs. Hence, they should discharge their responsibility

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 in a way to ensure efficient allocation of GoI’s investment in CPSEs for growth and
economic development and compliance of the guidelines.
4. In case any CPSE is not able to comply with any of the above guidelines due to some
unforeseen exceptional situation, provisions have been made to ensure that such issues
are duly considered upto certain level by the Administrative Ministry in consultation with
the Financial Adviser for providing exemptions to CPSEs through a well defined
procedure, on a case to case basis.
Question 10: What is Central Public Sector Enterprises (CPSE) Exchange Traded Fund (ETF)?

• An Exchange Traded Fund (ETF) is a security that tracks an index like an index fund, but trades
like a stock on an exchange. Constituent stocks are listed and actively traded, and may have
representation from various sectors to provide ETF unit holders adequate diversification.
• Disinvestment through the ETF route allows simultaneous sale of GoI stake in various CPSEs
across diverse sectors through a single offering and avoids the necessity to go to the market
repeatedly for divesting different stocks. The CPSE-ETF provides a mechanism for the GoI to
monetize its shareholding in those CPSEs that eventually form part of the CPSE ETF basket, in
a stock-neutral, time-efficient and non-disruptive manner.
• The CPSE-ETF approved in May, 2013 comprises stocks of listed CPSEs with disinvestment
upto 3% of GoI shareholding from an individual CPSE constituent of ETF. The CPSE-
ETF approved basket comprises 10 scrips, namely, BEL, CIL, EIL, CONCOR, GAIL, IOL, OIL,
ONGC, PFC & REC. The Government realized an amount of Rs. 3000 crore as disinvestment
proceeds through New Fund Offer (NFO) of CPSE-ETF scheme launched in March, 2014.
Question 11: How are the disinvestment proceeds used ?

Answer: The proceeds of disinvestment are credited into National Investment Fund
(NIF) constituted in November, 2005 and are used for the approved purpose, as decided from
time to time.

Presently, the disinvestment proceeds are credited to the existing NIF which is a ‘Public
Account’ under the Government Accounts and the funds would remain there until withdrawn
/invested for the approved purposes. The NIF is utilized for the following purposes:

1. Subscribing to the shares being issued by the CPSEs on rights basis, so as to ensure that
51% ownership of the Government in CPSEs is not diluted.
2. Preferential allotment of shares of the CPSE to promoters as per SEBI (Issue of Capital and
Disclosure Requirements) Regulations, 2009 so that Government shareholding does not
go down below 51% in all cases where the CPSE is going to raise fresh equity to meet their
Capex program.
3. Recapitalization of public sector banks and public sector insurance companies so as to
strengthen them through further capital infusion towards achieving the Basel III norms.
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4. Investment by Government in RRBs/IIFCL/NABARD/Exim Bank;
5. Equity infusion in various Metro projects;
6. Investment in Bhartiya Nabhikiya Vidyut Nigam Limited and Uranium Corporation of India
Ltd.
7. Investment in Indian Railways towards capital expenditure.

7 How successful is government in achieving the disinvestment targets?

The central government has managed to meet its disinvestment targets only once in the last
10 years, and is struggling to do so again this financial year. The successful year was 2017-18,
when the government exceeded its Rs 1 lakh crore target by taking in actual proceeds of Rs
1,00,056 crore. However, its earnings till December 2018 are just Rs 34,142.35 crore, less than
half the Rs 80,000-crore target it set itself for 2018-19.

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What’s more, a closer look at the data reveals that a substantial chunk of the accruals in 2017-
18 came from stake sale between central public sector enterprises (CPSE) and buybacks — a
scheme which allows companies to repurchase part of the outstanding shares. According to
Prime Database, a top source for capital market information, 36.62 per cent of the
disinvestment target last year came from CPSE to CPSE sales. In other words, PSUs failed to
exit businesses despite meeting the target — stakes merely changed hands — diluting the
purpose of the exercise.

A study by Pahle India Foundation showed that over the last few years, LIC has consistently
subscribed to CPSE shares during the disinvestment process.

“In 2015, LIC bought almost 50 per cent of Coal India’s and 86 per cent of Indian Oil’s issue
size. A year earlier, it had bought roughly 72 per cent of SAIL’s offer size and subsequently 5
per cent of the government’s stake in BHEL through private placement, since going to the
market had been ruled out,” the study said.

The disinvestment process must be handled more efficiently. The breakup of 2017-18
disinvestment proceeds indicates that ownership of government has barely reduced.

8 Budget 2019 AND DISINVESTMENT

The Government received over ` 1 lakh crore from disinvestment proceeds during 2017-18.
Further, the government is confident of crossing the target of `80,000 crore this year. Trends
in disinvestment receipts as presented by Union Budget 2018-19 are as under:

Further, Budget 2019-20, presents the following picture with regard to miscellaneous capital
receipts on account of disinvestment:

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How are Disinvestment receipts accounted for in the Budget?

Disinvestment receipts are disclosed in Union Budget as part of Miscellaneous Capital

Receipts.These include receipts on account of disinvestment of part of government equity in
central Public sector Enterprises ( CPSEs), proceeds from strategic disinvestment and other
such transactions. Government has constituted a 'National Investment Fund' (NIF) into which
the proceeds from disinvestment of Government equity in selected CPSEs is channelized. The
funds so credited to NIF will be withdrawn and used for financing expenditure on
infrastructure project, education, health sectors and investment in Indian Railways towards
capital expenditure in 2019-20.

9 Disinvestment and Economic Survey 2018

Economic Survey talks about policy initiatives of the government on investment management
in Central Public Sector Enterprises (CPSEs).

• The thrust of the Government is presently directed towards efficient management of its
investment in CPSEs, with the overall focus on higher economic growth through consistent
long-term policies as well as efficient and effective allocation of resources.

• Based on this philosophy, Budget 2016-17 focused on the need to migrate from the’
disinvestment based approach’ to ‘investment based approach’ for CPSEs. Accordingly,
renaming the Department as ‘DIPAM’ with expanded mandate denotes a paradigm shift
in the thinking process of the Government on its strategy to manage its investment in
CPSEs.

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• As announced, the Department also laid down comprehensive guidelines on “Capital
Restructuring of CPSEs:” in May, 2016 for efficient management of Government’s
investment in CPSEs by addressing various aspects, such as, payment of dividend, buyback
of shares, issues of bonus shares and splitting of shares.

• The commitment for time-bound listing of CPSEs has been taken on-board as an integral
part of the reforms initiatives of the Government by making an announcement to this
effect in the Budget 2017-18. Pursuant to the announcement, the Government put in
place a mechanism/procedure alongwith indicative timeless for listing of CPSEs on 17th
February, 2017. All Ministries/Departments have been requested to follow the suggested
timeless, aimed at time-bound listing of identified CPSEs as per the extant Act, Rules and
Regulations.

• In line with the budget announcement, the Government also approved listing of 14 CPSEs
(including 2 insurance companies) on the stock exchanges. During the current financial
year, 4 IPO issues of Housing and Urban Development Corporation (HUDCO), Cochin
Shipyard Ltd. (CSL), General Insurance Corporation and New India Assurance Company Ltd
have been successfully listed on the stock exchange.

• Post listing, while disinvestment of Government’s shareholding through ‘minority stake

sale (upto 49%) ‘ in CPSEs are undertaken as per the extant policy, the focus of the strategic
disinvestment is on adopting a pragmatic approach for the Government to exit from non-
strategic business to optimize economic potential for business enterprises by promoting
efficiency and professional management in the company.

• Keeping in view its inherent benefits, beginning January, 2017 the Government started
using index based ETF to offer an investment opportunity in CPSEs to pension funds and
retail investors in India. And pursuant to the announcement made in the Budget in this
regard, a new ETF, namely BHARAT 22 was announced in August, 2017. The New Fund
Offer of Bharat 22 launched in the month of November, 2017 received an overwhelming
response across all class of investors and the Government retained a portion of the
oversubscription by increasing the issue size of the offer.

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10 CURRENT AFFAIRS

10.1 CCEA approves procedure and mechanism for Strategic Disinvestment

On August 16, 2017, Cabinet Committee on Economic Affairs, chaired by the Prime
Minister Narendra Modi, approved following two proposals of Department of
Investment and public Asset Management (DIPAM) for strategic disinvestment:

1. Setting up an Alternative Mechanism: An Alternative Mechanism (AM) consisting

of the Finance Minister, Minister for Road Transport & Highways and Minister of
Administrative Department will be set up to decide on the matters relating to
terms and conditions of the sale from the stage of inviting of Express of Interests
(Eols) till inviting of financial bid.
2. Empowering the Core Group of Secretaries (CGD): CCEA has also given its nod for
empowering the core group of Secretaries to take policy decisions with regard to
procedural issues and to consider deviations as necessary from time to time for
effective implementation of decisions taken by the Cabinet.

10.2 Asia Index launches S&P BSE Bharat 22

Asia Index Private Ltd has announced the launch of S&P BSE Bharat 22 Index. It has been
launched to track the performance of state-run companies in which the central government
has divested its stake. Key features of the index are as follows:

i. The index is benchmark for “Bharat 22” disinvestment program of the government.
ii. It comprises of 22 select bluechip companies of which:
• 16 are Central Public Sector Enterprises (CPSE).
• 3 are from Specified Undertaking of the Unit Trust of India (SUUTI)
• 3 are PSU Banks, and are listed on the BSE.
iii. S&P BSE Bharat
22 has been licensed to ICICI Prudential AMC for development of
an exchange traded fund (ETF) based on the index.
iv. It
covers six sectors namely industrials, finance, utilities, energy, FMCG, basic
materials and telecom.

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10.3 PSUs disinvestment: Centre rejects Niti Aayog’s disinvestment proposal
The government will not accept Niti Aayog’s proposal of reducing the Centre’s stake in non-
strategic public sector companies to below 50% even as it may breach the disinvestment
target for the second year.

Niti Aayog has recommended lowering the government’s stake to less than 50% in all non-
strategic state-run companies over time for raising revenues as well as giving these
companies the functional autonomy to perform better. Niti had reasoned this would also
increase the value of government’s remaining stakes in these companies. There are over 250
CPSEs in which the government holds 51% or more and include large ones like NTPC, Power
Grid and Steel Authority of India.

Government officials said several companies with higher government holdings were
performing well and it would be unfair to say that ownership and management structure
needed to be overhauled for better efficiency.

10.4 Air India Disinvestment: Government Eyes $1 Billion From Air India Sale

The government is eyeing around $1 billion from the sale of national carrier Air India in the
next financial year. The government will initiate the process of strategic disinvestment of Air
India in the second half of 2019-20 and in between it would work towards selling some of its
subsidiaries and monetise assets.

Air India has a debt burden of Rs 55,000 crore. In November 2018, a ministerial panel headed
by Finance Minister Arun Jaitley had approved transferring Rs 29,000 crore debt to a special
purpose vehicle—Air India Asset Holding Company.

In August 2018, the government had received Parliament nod for Rs 980 crore equity infusion
in Air India under a "turn around plan". Earlier this month, Parliament approved a further Rs
2,345 crore equity infusion into the airline.

The ministerial panel has already cleared strategic sale of Air India's ground handling
subsidiary, Air India Air Transport Services. Plans are afoot for selling another subsidiary, Air
India Engineering Services.

A comprehensive financial package, including transfer of non-core debt and assets to a SPV,
implementation of robust organisational and governance reforms by the board and
differentiated business strategies for each of the core businesses of Air India, are part of the

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plan. The proceeds from sale of subsidiaries and land and building assets would go to the SPV
and will be utilised towards lowering the debt burden of the airline.

10.5 Disinvestment: PSU share sale hits record high in 2018

The government raised a record Rs 77,417 crore from sale of its stake in public sector units in
2018, and the disinvestment programme is headed for another blockbuster year in 2019 with
planned privatisation of national carrier Air India.

While big-ticket disinvestments, including ONGC’s acquisition of HPCL, CPSE ETF, Bharat-22
ETF, and Coal India stake sale, along with 6 initial public offerings (IPO) brought Rs 77,417
crore to the government coffers, the year was marred by botched attempt of the government
to sell 74 per cent stake in Air India.

The year 2018 saw IPO of two CPSEs from railway sector — RITES and IRCON. Four more CPSEs
— Hindustan Aeronautics, Bharat Dynamics, Mishra Dhatu Nigam and Garden Reach
Shipbuilders and Engineers — also made their debut on the stock exchanges last year.

10.6 Stake sale Plans for 2019

The first off the blocks in strategic sale plan for 2019 will be Pawan Hans where the
government holds 51 per cent, while oil major ONGC holds the remaining stake. The sale of
helicopter service provider Pawan Hans is expected to be completed by March.

Besides, buyback programme of as many as 10 CPSEs, including ONGC, Indian Oil Corp, Oil
India, NLC, BHEL and NALCO, are on course, which could fetch about Rs 12,000 crore to the
exchequer.

CPSE (Central Public Sector Enterprise) merger and acquisitions will be one of the focus areas
of the government this year as it waits to see PFC’s (Power Finance Corporation) plan to buy
out government stake in Rural Electrification Corporation (REC) for an estimated Rs 15,000
crore fructify. The next such M&A deal will be NTPC, buying government stake in SJVN for
about Rs 6,000 crore.

The year will see more of ETF offering, even as the government goes on to test waters with
the launch of a debt ETF to help CPSEs and public sector banks to raise capital to meet their
capital expenditure needs.

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10.7 Govt clears listing of seven CPSEs in effort to meet disinvestment target
Cabinet Committee on Economic Affairs, chaired by the Prime Minister Narendra Modi
cleared plans to list Telecommunication Consultants Ltd, RailTel Corp India Ltd, National Seed
Corp India Ltd, Tehri Hydro Development Corp Ltd, Water & Power Consultancy Services Ltd
and FCI Aravali Gypsum and Minerals Ltd.

The listing of Central Public Sector Enterprises (CPSEs) on the exchange shall unlock their
value and encourage investor participation in the CPSEs. Further, Alternative Mechanism
comprising of the Finance Minister, Minister of Road Transport & Shipping and the Minster
of concerned administrative ministry has been empowered to decide on extent, mode of
disinvestment, pricing, time etc. of listed CPSEs (including CPSEs to be listed in future).

10.8 Pawan Hans stake sale: Centre has ‘substantial’ interest, says disinvestment secretary
A senior government official recently said the Centre has received “substantial" interest for
Pawan Hans stake sale and plans for Air India disinvestment also continues. The government
owns 51% in Pawan Hans, which has a fleet of 46 choppers. The remaining 49% is with state-
run ONGC. If the sale goes through, government will exit the chopper-maker. In April, the
government had issued the information memorandum for the 51% strategic stake sale in
Pawan Hans and had sought expressions of interest (EoI) from interested bidders.

10.9 FY19 Disinvestment: Land, Other Assets Of 9 PSUs Identified For Strategic Sale To Be
Sold Separately
The government has identified tracts of land and other assets of some central public sector
enterprises which will be hived off before the select state-owned companies are put on the
block for strategic sale. Of the 24 CPSEs that have in-principle approval for strategic sale, the
government has identified certain assets of nine companies which shall be hived off and
disposed separately. These nine CPSEs are Pawan Hans, Scooters India, Air India, Bharat
Pumps & Compressors Ltd, Project & Development India., Hindustan Prefab, Hindustan
Newsprint Ltd, Bridge and Roof Co and Hindustan Fluorocarbons.

24 CPSEs that have got Cabinet approval for strategic sale include Dredging Corporation of
India, HLL Lifecare, Bharat Earth Movers Ltd., units and joint ventures of ITDC, Bhadrawati,
Salem and Durgapur units of SAIL, Nagarnar Steel Plant of NMDC, Central Electronics and
Ferro Scrap Nigam.

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10.10 Govt plans further disinvestment in headless NIA, GIC
Finance Ministry is planning a share sale in two recently listed insurance companies —
General Insurance Corporation of India (GIC) and New India Assurance (NIA) which has
remained headless for the last four months. Department of Investment and Public Asset
Management (DIPAM) has invited expression of interest (EoI) from merchant bankers and
brokers for managing the offer for sale (OFS) of GIC and New India Assurance.

10.11 Disinvestment department to frame guidelines for sale of enemy shares

The disinvestment department will soon come out with guidelines for sale of 'enemy shares'
after consulting enforcement agencies of the revenue department, which have experience in
auctioning confiscated properties. The Union Cabinet, chaired by Prime Minister Narendra
Modi, earlier gave 'in-principle' approval for sale of shares which are part of 'enemy property'.
Enemy property refers to the assets which were left behind by people who migrated to
Pakistan or China and are no longer citizens of India.

Over 6.50 crore shares in 996 companies of 20,323 shareholders are under the custody of
Custodian of Enemy Property of India (CEPI), under the Home Ministry. Of these 996
companies, 588 are functional/active companies -- 139 of these are listed, while 449
companies are unlisted. Last year in March, Parliament had amended the Enemy Property
Act, 1968, to bar successors of those who migrated to Pakistan and China during partition
from any claim over the properties left behind in India. The government has vested these
properties with the CEPI. After the India-Pakistan War of 1965, the Enemy Property Act was
enacted in 1968 to regulate such properties and list the powers of the custodian.

As the CEPI has no expertise in selling of shares, the government has decided to rope in the
Department of Investment and Public Asset Management (DIPAM) for sale of these 'enemy
shares', many of which are not even listed on the stock exchanges. The process for selling
these shares is to be approved by the Alternative Mechanism headed by Finance Minister and
comprising Minister of Road Transport and Highway and Home Minister.

The DIPAM will also decide on the modalities for appointing merchant bankers and legal
advisors for sale of these shares. The proceeds of the share sale will be accounted for as
disinvestment proceeds.

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10.12 Set aside divestment proceeds for sick PSUs revival: Parliamentary panel
A parliamentary panel has recommended earmarking of a defined portion of proceeds from
divestment of state-owned enterprises for funding revival, restructuring and modernisation
proposals of sick PSUs that have the potential to turn around.

The government has set a target of raising Rs 80,000 crore in 2018-19 by selling stake in state-
owned firms, with strategic divestment of 24 CPSEs on the cards, and privatisation of Air India
on track. Besides, NITI Aayog is preparing another list of sick PSUs that can be privatised.

In its report, the Parliamentary Standing Committee on Industry said it is of the firm opinion
that while making a decision to disinvest PSUs, especially those that are profit making, the
government must accord due consideration to the jobs supported by them, the track record
of their contribution to the national economy, their CAPEX (capital expenditure) creation
potential and also their role in balancing the social/regional fabric.

10.13 Govt to divest 5% in BEL

Union Government has initiated the process to offload 5 per cent of its equity in Bharat
Electronics (BEL). This company is a Central Public Sector Enterprise (CPSE) under Defence
Ministry.

BEL was the first defence PSU to be listed on the stock exchanges almost three decades back.
The company, set up in 1954, is an R&D/ technology-driven company operating in the
competitive Defence electronics arena. The Department of Investment and Public Asset
Management (DIPAM) has invited request for proposal (RFP) to engage merchant bankers
and selling brokers for the stake sale. R&D is the main focus area of the company.

The shares are to be sold through the offer-for-sale (OFS) route, better known as auction
method. Department of Investment and Public Asset Management (DIPAM) has invited
request for proposal (RFP) to engage merchant bankers and selling brokers for the stake sale.

10.14 Disinvestment booster: ONGC board clears Rs 40-bn share buyback

In a boost for the government's effort to meet its disinvestment target for the current
financial year, the board of state-run Oil and Natural Gas Corporation (ONGC) approved its
share buyback worth Rs 40.22 billion. ONGC had reportedly approached the finance ministry
stating that the company would not be able to go for a share buyback and pay interim
dividend too.

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Department of Investment and Public Asset Management (Dipam) is targeting around Rs 150
billion of the financial year’s divestment target from share buybacks. Share buyback is the
repurchasing of shares by the company that issued it.

11 SOME INTERESTING FACTS REGARDING DISINVESTMENT IN INDIA

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