Interview with Atanu Chakraborty: “Value unlocking remains the central theme in our entire programme”

“Value unlocking remains the central theme in our entire programme”

Atanu Chakraborty Secretary, Department of Investment and Public Asset Management

The Department of Investment and Public Asset Management (DIPAM) has become instrumental in unlocking value through strategic disinvestment in central public sector enterprises (CPSEs). The department has adopted a new approach, treating disinvestment as the efficient management of investment, looking at investors professionally and rewarding the shareholders, promoting exchange-traded fund (ETF)-based investment, and facilitating asset securitisation. In an interview with Indian Infrastructure, the new secretary of DIPAM, Atanu Chakraborty, shares his views on the disinvestment strategies, the key issues and challenges faced, and the future focus areas…

What have been the key accomplishments of DIPAM in the past few years?

The amount raised through the disinvestment programme between 2002 and 2014 has been equivalent to that raised in the past four years through the government’s investment programme. Including the dividends, the amount is much larger. An interesting aspect is that the average number of transactions increased from around six in 2005-06 to 37 in the past year. This is providing an opportunity to various stakeholders including investment bankers, pension funds and hedge funds to enter into the PSU space, where they were wary of investing earlier. This broadens the scope for companies, enabling them to perform better, and helps unlock value. They must unlock value for all the stakeholders, including shareholders.

What has been the level of progress on disinvestment in the 24 CPSEs?

At present, in addition to the 24 CPSEs, a fifth tranche involving 11 CPSEs as recommended by the NITI Aayog, is under consideration.

With respect to disinvestment in CPSEs, public focus has been on Air India. The divestment in Hindustan Petroleum Corporation Limited is also noteworthy to mention, wherein ONGC acquired the company and the government offloaded its stake. Another six to eight CPSEs have been put up on the block, and their disinvestment process is expected to be completed soon. It is interesting to note that apart from private players, PSUs have shown interest in acquiring stakes in these CPSEs. In addition, the subsidiaries of Air India are being considered for sale in the near future. For disinvestment in Air India, issues such as high crude prices have put the aviation sector under stress.

What are the plans regarding the assets owned by public utilities like the National Highways Authority of India (NHAI) and Powergrid? Is DIPAM involved with them?

Public utilities have shown some progress with respect to asset securitisation. The NHAI’s toll, operate and transfer model and Powergrid’s infrastructure investment trusts (InvITs) are examples of this.

DIPAM is trying to facilitate the sale of non-core assets of PSUs through strategic disinvestment. Once a model is established, it can be possibly be used by many other agencies. Structures such as real estate investment trusts and InvITs are available for the real estate and infrastructure sectors respectively. However, such a model needs to be refined to ensure that other agencies in the government that do not come in the ambit of strategic disinvestment are able to use it.

What are the biggest issues and challenges being faced?

Individual companies pose their individual issues. We have designed market-driven instruments to ensure that companies are always marked to market and the entire process remains transparent. Therefore, we continuously strive to remain competitive and transparent. However, the cyclical nature of markets does affect the disinvestment programme at times. Although we try to time the markets, the markets’ capacity to absorb international volatility in exchange or commodity prices at some point keeps larger funds from buying specific scrips. Further, the communication of companies with the market, where PSUs have lagged a little bit, is a softer issue towards which we are continuously working.

What are some of the other strategies and interventions that you are considering, apart from directing the companies to be better at corporate governance and communication?

Ultimately, investors look at the improvement of their wealth, which will either come through a series of dividends and other such cash flows or capital growth. Companies are now focusing on this front and are coming to the market as can be seen from the fact that the number of transactions is increasing every year. Companies are realising that they can unlock value from their subsidiaries and can also move out of certain non-core areas (a case in point is ONGC’s decision to move out of Pawan Hans). Those were the kind of decisions that PSUs were not making earlier. However, with the government’s strong intent to bring about such changes, companies have started responding positively to become profitable and unlock value. At the end of the day, value unlocking remains the central theme in our entire programme.

Between 2017-18 and 2018-19, we will see 17 companies getting listed. RITES initial public offering (IPO) has been quite successful. It has set a particular template as to how the shareholders in smaller towns can be approached through road shows. We are also trying to align ourselves with the international investing trends, where active investing is giving way to passive investing that is, ETF-based investing. The ETF culture in India is gradually building up. Since 2014, we have already put in place an ETF for PSUs called the CPSE ETF, which is energy heavy. We are rebalancing it so that it has better acceptability. Further, this year itself we launched the second tranche of Bharat 22 ETF. It comprises 16 PSUs, three public sector banks and three shares of the Specified Undertaking of Unit Trust of India holding of the Government of India.

What is the timeline for the draft institutional framework for asset monetisation?

Asset monetisation has various pieces, one of which pertains to the process which is almost ready. It will be taken for approval from competent authorities very soon. The other component is how each piece of the asset needs to be monetised. Now, there are plain vanilla methods of selling or leasing, and there are slightly more complicated yet more suitable long-term methods that can help link the assets with financial instruments, which can then be marked to the market. In a plain sale, there is a specific end-user customer and the PSU concerned. However, in other methods, a host of stakeholders such as fund managers, hedge funds, pension funds, etc. can be brought on board through financial instruments. So, the real challenge in asset monetisation is to design financial instruments in a manner that can attract a large number of stakeholders.

What is your stance on providing money for the revival of companies?

We have very strict requirement with regard to putting money in companies facing revival issues. If a company is doing well, then the market should be able to recognise the fact and the company should be able to put itself in the market.

What are DIPAM’s priorities for the next two to three years?

The name DIPAM means investment and public asset management. Investment can largely come into PSUs if the government vacates space for the private sector. In case of 100 per cent-owned PSUs, the space can be vacated through IPOs and follow-on public offers. Subsequently, it can be done through offer for sales and block deals besides the strategic disinvestments recommended by the NITI Aayog. To reward the shareholders, both minority shareholders and government as the majority shareholder, there are policies related to dividend to ensure that dividend yields are at a consistent level. Besides, there are companies with large sums of cash but not as many projects commensurate with the amount of cash they are holding. There is an entire package of giving away the investment space to the private sector, simultaneously, providing a basis for these companies where the shareholder is rewarded consistently. So, these are the two pillars on which the entire strategy stands.

The other part is public asset management, which goes beyond the balance sheet and looks into how the assets held by these companies are being managed or where they need to be managed better. We are looking at those companies that are going for strategic disinvestment and looking at their assets to make them perform better. There are assets such as land, towers (in case of telecom companies), and other sector-specific assets that can possibly be used for providing better cash flows. Public asset management, currently a fledgling entity, is picking up and a policy structure is being made for the same. Sooner or later, this will have the same thrust as that on the major investment portfolio space.