Divestments to speed up post FinMin proposal

To suggest five different methods to set valuations of PSUs, removing that hurdle to begin strategic disinvestment

Published: 25th October 2016 12:41 AM  |   Last Updated: 25th October 2016 05:31 AM   |  A+A-

Express News Service

NEW DELHI: The Government’s push towards disinvestment in many public sector undertakings will see it take a major step forward, with the finance ministry set to propose at least five different methods for valuation of over a dozen PSUs across sectors identified for strategic stake sale. These methods, according to a Ministry source will include relative peer review and discounted cash flow, removing valuation issues as an obstacle to the process. 

With the privatisation of PSUs being considered, and executed, after a gap of more than a decade, the official stated that the ministry feels that the valuation of equity becomes important in the case of strategic sale of companies that are not listed. Valuations are also hard to make in cases where the capital markets may not fully reflect the intrinsic worth of a share disinvested in a company earlier.
“The use of a particular method of valuation will depend on health of the company, the sector in which it operates and the company’s intrinsic strength,” the source said. 

But the ministry is set to move to solve those obstacles with a proposal that will suggest at least five different valuation methodologies — including a balance sheet method, transaction multiples, and asset valuation procedure, for PSUs which will be up for outright sale or lowering of government equity below 50 per cent. 

PSUs identified for strategic sale reportedly include profit-making Bharat Earth Movers and Certification Engineers International as well as loss-making Scooters India.
According to another source,  the Cabinet is likely to consider the strategic stake sale proposal in its next meeting. 

While valuing a company, the officials will analyse its historical performance, its competitive positioning in the industry, inherent strengths/weaknesses of the business and the opportunities/threats presented by the environment, forecasting operating performance and the global industry outlook, among others, the official explained. 

The government has already been divesting minority stakes of 5-15 per cent in state-owned companies across sectors. But after a 12-year hiatus, it has also revived strategic disinvestment plans and will bring down holdings in these PSUs to below 50 per cent.


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