The Russia-Ukraine conflict may force India to extend deadlines for planned strategic divestments in some major state-run companies with potential investors seeking more time to submit bids, said two government officials aware of the developments, potentially impacting the government’s aim to bridge the fiscal deficit and raise funds for social welfare projects.
The conflict will also likely hit valuations of Bharat Petroleum Corp. Ltd, Shipping Corporation of India, BEML Ltd and Pawan Hans Ltd, among others, that are being lined up for stake sales amid an overall delay in the entire process, the officials said. They said initial signs of a slowdown have already begun to emerge, with deadlines of some of the divestments being extended. This is set to derail the government’s disinvestment plan not only for this fiscal through March but also for the next year as investors remain on edge following growing uncertainty due to the global geopolitical tensions and rising oil and other commodity prices. “Nearly all transactions are in slow mode… investors are taking time because of uncertainties caused by war,” one of the officials said, seeking anonymity.
The second official cited above said while the government was trying to continue engaging with potential investors and bidders, waning investor sentiment has thrown a major spanner in the works.
The planned sale of Life Insurance Corp. of India (LIC) shares by this fiscal end holds the key for the government to meet its reduced asset-sales target of ₹78,000 crore for FY22. The disinvestment proceeds were budgeted for ₹1.75 trillion. LIC’s public offering would follow the successful sale of Air India to Tata group.
However, sweeping sanctions against Russia and the expulsion of several Russian banks from financial messaging platform SWIFT may dampen foreign institutions’ participation in LIC’s share sale, as reported by Mint on Monday. “We’ve been watching the situation since last month and expecting that there may be some improvement, but it’s only getting worse… some stability is needed, once that happens, markets will bounce back,” the first official said, referring to the volatile stock markets that are reflective of investor sentiment.
Queries emailed to a finance ministry spokesperson remained unanswered.
For FY22, the government has received disinvestment proceeds of ₹12,423 crore as of 7 March from Air India, MOIL, NMDC, HUDCO, HCL and IPCL. This is far below the revised target of ₹78,000 crore.
Economists said the government would have a bigger challenge at hand in FY23 as it would have to divest a much larger number of public sector shares, which may put further pressure on valuations of enterprises lined up for divestments.
“The government will have to target sales worth ₹1.3 trillion next fiscal— ₹65,000 crore for LIC if it spills over to next fiscal and ₹65,000 crore target for FY23—which will be a major challenge, and it’s a big question whether the market will have the capacity to take on such a large number of PSU shares,” said Madan Sabnavis, chief economist at Bank of Baroda.
“Even if the Ukraine crisis is settled, it will be at least six months before the markets normalize,” Sabnavis noted.
Source: Mint