Strategic Decontrol

Since the start of disinvestment process in 1991, various governments have followed several routes to sell state-owned psus. Over a decade later, disinvestment minister Arun Shourie has zoomed-in on strategic sale as the most preferred option, leading to a political furore. We take a look at the various options and their pros and cons.

Most of the psus—ibp, ipcl, vsnl, Balco and Hindustan Zinc—have been sold through strategic sales in the past two years. The ministry feels this has led to better realisations since the buyer is willing to pay a huge premium for management control. Countries like Mexico and Mozambique have favoured competitive bidding to sell a substantial stake in their state-owned firms. While the former sold its 350 enterprises this way, Mozambique used this method to sell 21 companies.

Although selling psu equity in the open market is the most transparent route, it can be effected through either a domestic issue or by tapping the global markets. Britain took the lead in pursuing this option in the early '80s when Margaret Thatcher used under-priced public issues to promote widespread share ownership. Some of these included British Telecom, British Gas and British Airways. But it is expensive, and does not result in change in management control.

There are other innovative means to sell psu equity. In the case of Modern Foods, Shourie went in for an outright sale. That is, selling the companies lock, stock and barrel. In Chile, this has been the preferred route. To derail Shourie's plans in the oil sector, petroleum minister Ram Naik decided that various psus should pick up stakes in each other, creating an interlocking that will make it difficult to sell any of these companies to a private bidder.