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Disinvested PSUs & their Profit/Loss Journeys: Part I – 2004-05 to 2012-13

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In an earlier article, we looked at disinvestment history of various governments and the amounts earned through them. In this story, we look at the individual companies and their status at the time of disinvestment.

In Factly’s earlier article we briefly looked at the history and political trends of disinvestment in the country. In this article, we look whether the Public Sector Undertakings (PSUs) disinvested during 2004-05 to 2012-13 were incurring profit or loss around the year of their disinvestment.

In the previous article, we outlined the three approaches to disinvestment, namely, Minority disinvestment, Majority disinvestment, and Complete disinvestment or privatization.

Disinvestment of a minority stake in PSUs is broadly carried out in the following ways:

  • Initial Public Offering (IPO): an offer of shares by an unlisted PSU to the public for the first time.
  • Follow-on Public Offering (FPO): also known as Further Public Offering, it’s an offer of shares by a listed PSU.
  • Offer for sale (OFS): shares of a PSU are auctioned on the platform provided by the stock exchange. This mode has been used extensively by the government since 2012.
  • Institutional Placement Programme (IPP): under this, only selected financial institutions are allowed to participate and the government stake is offered to only such institutions. E.g., mutual funds, insurance, and pension funds such as LIC etc.
  • CPSE Exchange Traded Fund (ETF): Through this route, the government can divest its stake in various PSUs across diverse sectors through a single offering. This mechanism allows the government to monetize its shareholding in those PSUs which form part of the ETF basket.
  • Crossholdings: in this method, one listed PSU takes up the government stake in another listed PSU.

Disinvestment of a majority stake in PSUs is broadly carried out in the following ways:

  • Strategic sale: it is the sale of a substantial portion of government shareholding, 50 percent or higher, in a PSU, along with the transfer of management control.
  • Privatization: it’s a type of strategic sale in which the government divests its entire shareholding, along with the transfer of management control, to a private entity.

Year-wise Disinvestments

Now, let’s take a look year-wise break-up of disinvestments from 2004-05 to 2012-13. In the following table, the mode and type of transaction describes the way in which disinvestment was carried out (broadly discussed above). Residual equity with government describes the post-transaction equity of the government in the said PSU.

The data is sourced from the Department of Public Enterprises, from their Annual Year Books and Public Enterprises Survey Reports.

Are these PSUs profit or loss making?

Now, let’s look at the trend of profit and loss for the disinvested PSUs. In the following table, the profit and loss data has been recorded for three consecutive years around the given year of disinvestment. All profit values are recorded as (+) entries and loss values as (-) entries.

*Data not available in Public Enterprise Survey Reports.

There are a few notable observations:

  • All PSUs disinvested from 2004-05 to 2012-13 were profit making for the past few years, around the year of their disinvestment. (Discounting the unavailable data).
  • Most disinvestments involved sale of minority shareholding, as percentage of stake divested was less than (or around) 10% in most cases.
  • With the exception of Maruti Udyog Ltd and Indian Petrochemicals Corp. Ltd., the post-transaction equity of the Government was more than 50% in all cases. In other words, the Government retained management control of these PSUs after disinvestment of minority stakes.

Featured Image: Disinvested PSUs

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