CPSEs need ministerial panel’s nod to to sell units to govt entities

Providing impetus to Centre’s privatisation bid, the cabinet recently empowered the boards of the Central Public Sector Enterprises (CPSEs) to privatise, disinvest or close their subsidiaries and sell stakes in joint ventures.

The CPSEs will now have to take special permission from a ministerial panel to sell their stakes to state governments or other government-owned companies according to the latest guiding principles, the Financial Times reported.

This move will provide a boost to government’s new public sector enterprises policy to unlock capital, which is either stuck or sub-optimally employed in state assets, and put it to better use.

Previously, a few state governments had expressed interest in purchasing CPSEs, which are on the block or are being closed down.

The Department of Investment and Public Asset Management (Dipam), issued detailed guidelines for strategic disinvestment/minority stake sale of subsidiaries/ units/ sale of stakes in JVs by the holding/ parent PSE. According to these guidelines, all such privatisation or stake sales proposals would be sent for approval of the ministerial panel on such matters for in-principle approval.

The proposals for such a stake sale would have to be routed by the PSEs through the administrative ministry to Dipam, which will then take the approval of the alternative mechanism (AM) consisting of ministers without having to secure the approval of the Cabinet.

Until now, the CPSE Boards did not have powers for disinvestment/closure of their subsidiaries or units or stake in JVs.

“In case of any compelling reason shareholding in any subsidiary/unit/JV is required to be sold to state government/PSEs, approval of AM may be taken at the time of taking “in-principle” approval after giving adequate justification,” Dipam said. This move is to dissuade such transactions with other government sector entities.

Earlier, in April, the central government had explicitly barred the CPSEs as well as state governments and companies/co-operatives owned by them from bidding for CPSEs being put on the block. The move was aimed at ensuring that the government’s policy to privatise most CPSEs while keeping only a few under its ownership in strategic sectors was not jeopardised by CPSEs buying one another.

According to the new guidelines, the disinvestment of subsidiaries, JVs or minority stakes would be driven by the board of the CPSEs. These boards are required to follow a transparent process in appointing professional agencies such as bankers, transaction advisors, legal advisers as intermediaries; structure the strategic disinvestment transaction; ensure a transparent bidding process in for privatisation; follow due diligence in security/ political clearance for; share purchase agreement (SPA)/ shareholders agreements (SHA); etc.

Currently, there are about 380 PSEs (including subsidiaries). Around 20-30% of them may be closed for being sick or unviable. The government intends to keep a minimum presence in the four strategic sectors.

The four strategic sectors are atomic energy, space and defence; transport and telecommunications; power, petroleum, coal and other minerals; banking, insurance and financial services. All non-strategic sector CPSEs will be privatised or closed in case privatisation is not possible.

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