June 18, 2021

Lockdowns hold up due diligence process; stretch AI, BPCL sell-off plans

Privatisation plans for key state-owned companies such as BPCL and Air India are likely to face delay and may stretch into later part of the year as the Covid-19 pandemic affects mobility of people, disrupting closure of transactions.

Privatisation plans for key state-owned companies such as BPCL and Air India are likely to face delay and may stretch into later part of the year as the Covid-19 pandemic affects mobility of people, disrupting closure of transactions.

The government, however, is confident of pulling through stake sales in National Fertilizers Ltd (NFL) and Rashtriya Chemicals and Fertilizers Ltd (RCF) as per schedule due to the market appetite for fertiliser companies and the “offer for sale” route making it easier to divest, sources said.

“A number of senior and junior levels officials in the Finance Ministry, including DIPAM (Department of Investment and Public Asset Management), are down with Covid-19. This, along with the fact that many countries have imposed travel restrictions to India, will have a bearing on the timing and timelines for key divestment proposals, as it impacts travel plans of potential bidders as well as their advisors. We expect the processes to pick up pace as the situation normalises,” the Finance Ministry said.

Even as the government has opened a virtual data room for bidders in the case of BPCL, potential investors typically carry out a physical due diligence of company assets including plant and machinery, pipelines, real estate assets among others. “Due diligence period, including physical checks and verification, is typically a 3-4 month process and it is getting stretched due to lockdown in various states and restrictions on international travel severely restricting mobility of people,” sources said.

They added, “It’s a tough situation. Many of the merchant bankers, transaction advisers and legal people involved in the ongoing transactions are also down with Covid-19. We wanted to close some key divestment proposals, including strategic sales, in first half of current fiscal. However, we may not have that cushion now as the entire process has slowed down, including for those cases where we had received Expression of Interest.”

The DIPAM, however, is confident of completing the transactions outlined in the Union Budget 2021-22 during the fiscal year itself, a senior government official said. The disinvestment programme is critical for the government to generate resources to support capital expenditure.

The Centre has set a disinvestment target of Rs 1.75 lakh crore for the current year, and BPCL, Air India, Shipping Corporation are among the key strategic sale proposals currently under sale process. In the fiscal year 2020-21, the government had raised Rs 32,835.45 crore through disinvestment by various means including offer for sale, initial public offer and buyback.

Strategic sale of IDBI Bank, privatisation of two other state-owned banks, and IPO of Life Insurance Corporation are other key transactions expected this fiscal. Earlier this month, the Cabinet Committee on Economic Affairs approved the strategic divestment of IDBI Bank, along with a transfer of management control.

The government owns 45.48 per cent in IDBI Bank, while LIC holds 49.24 per cent. LIC is currently the promoter of IDBI Bank while the government is co-promoter.

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