CareEdge Sees Rs 11.5 Tn Divestment Potential At Current Market Capitalisation

A total divestment potential of approximately Rs 11.5 trillion at current market capitalisation is estimated, assuming the government retains control over the company's governance by maintaining at least a 51 per cent stake in these public undertaking companies and divests any excess shares, according to CareEdge Ratings.

Disinvestment or divestment typically refers to the sale by the government, partly or fully, of a government-owned enterprise. As per CareEdge Ratings, the estimate is a little more than twice the total divestment of Rs 5.2 trillion conducted since 2014.

Of this Rs 11.5 trillion divestment potential, public sector enterprises could contribute around Rs 5 trillion, while public sector banks and insurance firms could potentially add another Rs 6.5 trillion. This represents the maximum amount that could be raised at current market prices without the government losing governance control of these entities, the rating agency said in a report this week.

However, the government may not opt to divest all its potential and the decision to divest such listed firms may be influenced by the industry's strategic nature, the companies' profitability, financial market conditions and welfare/social considerations.

"After missing the divestment target for five consecutive years, taking a fresh look at the divestment strategy is essential. The government over the medium term cannot rely solely on small ticket sales of minority shares by OFS (offer for sale) to meet its divestment target and should take a fresh look at big-ticket divestment plans especially if the CPSE has been making losses consistently," said Rajani Sinha, Chief Economist, CareEdge Ratings.

"The conclusion of the election season, combined with the stock market hovering around all-time highs, provides a perfect opportunity to advance some significant divestment initiatives. However, past issues like procedural delays, litigations by labour unions and other interest groups against divestment, and pricing issues continue to slow divestment despite favourable market conditions," added Sinha.

In the interim budget tabled in February this year, the 2023-24 divestment estimate was revised downward to Rs 300 billion from the previously budgeted Rs 510 billion. According to data from the Department of Investment and Public Asset Management (DIPAM), total divestment in 2023-24 fell short of even the revised estimate, achieving approximately Rs 165 billion, which is about 32 per cent of the initial target, the rating agency said.

The absence of any big-ticket divestment resulted in the government falling short of its target. CareEdge believes that the government will maintain its target of divestment (as a miscellaneous capital receipt) at Rs 500 billion in the upcoming budget to be tabled on July 23, the same as that given in the interim Budget.

CareEdge believes achieving this target hinges on the government's ability to proceed with big-ticket divestments. After the demerger of land assets of the Shipping Corporation of India (SCI), its possible divestment looks likely in 202425, provided favourable market conditions prevail, it asserted.

If the government offloads its entire stake in SCI, it could generate Rs 125-225 billion as divestment proceeds, the report said. The same report, also argues that with the bumper dividend from the RBI, the central government's fiscal position remains comfortable, which may limit the urgency to push ahead with big-ticket divestments.

As per CareEdge Ratings, the government will stick to the 2024-25 target of miscellaneous capital receipts (which includes divestment) of Rs 500 billion. In 2023-24, the government has monetised assets worth Rs 1.6 trillion under the National Monetisation Pipeline, against the target of Rs 1.8 trillion. (ANI)