The finance ministry has stated that strategic sales of CPSE units that have already received Cabinet approval must be carried out by the respective state-owned companies in accordance with DIPAM guidelines that will be released soon. The Department of Investment and Public Asset Management (DIPAM) will continue to handle transactions for which Expressions of Interest (EoI) have been issued, it said.
The strategic sale proposal of any CPSE (Central Public Sector Enterprise) unit that has been approved by the Cabinet Committee on Economic Affairs (CCEA) or Alternative Mechanism (AM) will be taken forward by the state-owned company in accordance with the new guidelines, according to DIPAM’s office memorandum dated June 1. The office memorandum comes after the Cabinet’s decision on May 18 to empower the boards of Public Sector Enterprises (PSEs) to decide on the closure, strategic or minority stake sale in units/subsidiaries, giving state-owned companies more autonomy.
The Cabinet had empowered the boards of holding/parent PSEs “to undertake transactions for disinvestments (both strategic disinvestment and minority stake sale)/closure of subsidiaries/units/ sale of stakes in JVs, including for such cases, where ‘in-principle’ approval by the CCEA/AM has been accorded,” according to the DIPAM’s office memorandum. Since 2016, the Cabinet has given in-principle approval to 35 state-owned companies and/or their units or subsidiaries for strategic disinvestment. Nine transactions have been completed so far.
In addition, two SAIL units — Salem Steel Plant and Bhadrawati Steel Plant — and NMDC’s Nagarnar Steel Plant are in the process of being sold strategically. The DIPAM stated that the PSEs’ strategic disinvestment transactions/closure process should be transparent, based on competitive bidding principles, and consistent with the guiding principles to be established. DIPAM will establish such guiding principles for strategic disinvestment. DPE will issue guiding principles as a final step.
The boards of state-owned corporations will be required to submit proposals for the sale of their units or subsidiaries to DIPAM through the administrative ministry, according to the statement. The alternative mechanism on disinvestment will grant ‘in principle’ approval for disinvestment (both strategic disinvestment and minority take sale)/closure of Maharatna PSE subsidiaries that have been delegated to them, as well as review the parent or holding PSEs’ process of disinvestment or closure.
The AM is made up of the PSE’s finance, road transport, and highways ministers, as well as the minister in charge of the PSE’s administrative department. Previously, the board of directors of holding or parent public sector enterprises had the authority to make equity investments in joint ventures and wholly-owned subsidiaries, as well as mergers and acquisitions, subject to a net worth threshold.
Except for some limited powers given to Maharatna PSEs for minority stake disinvestment in their subsidiaries, the boards have no power to disinvest or close their subsidiaries, units, or stake in JVs. As a result, both strategic disinvestment and minority stake sale or closure of subsidiaries or units, or sale of their stakes in a JV, required Cabinet approval, regardless of the size of operations or capital deployed by such subsidiaries, etc.