India aims to raise $47bn from stake sales in state-owned firms over five years

The Indian government’s plan is to open up a steady stream of state companies to greater private investment, aiming for the kind of revenue that will be crucial to meet fiscal deficit targets. (Shutterstock)
Updated 13 July 2019
0

India aims to raise $47bn from stake sales in state-owned firms over five years

  • The government has set a divestment target of 1.05 trillion rupees for the current fiscal year ending March 31, 2020

LONDON: The Indian government has plans to raise as much as 3.25 trillion rupees ($47.4 billion) in the next five years by reducing its stakes in some large state-owned firms to 40 percent, two senior government officials told Reuters, in the nation’s biggest privatization push in more than two decades.
Last week, finance minister Nirmala Sitharaman in her budget announced that the government will look to reduce direct controlling stakes in some state-run firms on a case-by-case basis.
The plan will open up a steady stream of state companies to greater private investment, and target the kind of annual divestment revenue that will be crucial to meet fiscal deficit targets.
Prime Minister Narendra Modi’s administration already sold government stakes in a host of companies to raise a record $40.92 billion in his first five-year term, nearly three times the divestment proceeds of $14.52 billion achieved by the Congress party government in 2009-2014. Modi was re-elected for a second-term in a landslide victory in April-May.
The government has identified a number of state-owned firms, including explorer Oil and Natural Gas Corp, oil refiner Indian Oil, gas transmitter GAIL (India), power producers NHPC and NTPC, miners NMDC and Coal India, and Bharat Heavy Electricals, said the sources, who declined to be named due to the sensitive nature of the matter.
“We have done a calculation on current prices and we could get 3.25 trillion rupees if we bring our stake down to 40 percent in government companies, excluding banks,” one of the officials said.
The two officials, though, said that the government is yet to gauge investor appetite for the state-owned companies, and that the level of demand will be crucial to any timetable.
Analysts said the government would need to be flexible, especially given that a lot of the companies were in the resource sector and their prices would often depend on the volatility of commodities prices.
“The government should gauge investor interest and schedule an ideal timeframe that is in sync with the commodity cycle,” said Satyadeep Jain, a global metals and mining equity consultant.
Jain said the government should wait before selling stakes in companies such as Coal India as demand for its shares would be hurt by weak global coal prices. The country’s largest iron-ore miner NMDC would be a better target for sale as its stock has been buoyant this year, he said.
New Delhi wants to reduce its holdings in such a way that the cumulative stake of the government and state-owned companies such as Life Insurance Corporation (LIC) would continue to be above 51 percent.

HIGHLIGHTS

• Stake sales will open state firms to private sector.

• Many firms identified for sale are in resource sector.

• Government identifying some power firms for merger.

This year, the government is planning to put stakes in a group of companies into exchange traded funds, which would then be sold on public markets and raise at least 400 billion rupees, the officials said. The state’s stakes in those companies would be cut to 51 percent in some cases.
The government has set a divestment target of 1.05 trillion rupees for the current fiscal year ending March 31, 2020.
It is in the process of identifying some power companies for merger with a view to cutting its stakes to 40 percent, one of the sources said.
The government is planning a complex holding structure for companies such as state-owned power firm SJVN, which would be bought by another power firm such as state-owned NTPC or NHPC, sources said.
Eventually, the officials say the government would like to see its shareholdings reduced to 26 percent in some companies if the ruling Bharatiya Janata Party gets a third term.
“That step will be real privatization,” the second official said.


Spanish costs and weak UK push Santander profit 18% lower

Updated 23 July 2019
0

Spanish costs and weak UK push Santander profit 18% lower

  • Profits in Britain tumble amid pressure on mortgage margins

MADRID: Spanish lender Santander reported an 18% fall in quarterly net profit hurt by one-off restructuring costs from its acquisition of Banco Popular and a weak performance in Britain despite a solid performance in Latin America.
It reported a net profit of 1.39 billion euros ($1.56 billion) for the three months to the end of June, topping the 1.29 billion euros expected by analysts in a Reuters poll.
The euro zone's largest bank by market capitalisation, which took over Banco Popular two years ago, recently agreed with unions on the closure of around 1,150 branches and layoffs in Spain -- around a tenth of its Spanish workforce.
It said it would take charges of 706 million euros, 600 million euros alone in Spain, where it booked a loss of 262 million euros. Excluding one-off costs, underlying net profit in the quarter was up 5%.
In Britain, its third-largest regional market after Spain and Brazil, profit fell 41%, due to a continued pressure on mortgage margins and to restructuring costs of 26 million euros and provisions of 80 million euros.
It had a solid performance in Brazil and Mexico in the second quarter and Chairman Ana Botin told an extraordinary general meeting that Mexico was an important part of its plan to invest and grow in Latin America.
Santander's diversification overseas, especially in Latin America, has helped the bank to cope with tough conditions for banks in Europe in the years since the financial crisis.
Santander confirmed at the meeting that it would fight a 100 million euro ($112 million) lawsuit being brought by Italian banker Andrea Orcel after it withdrew an offer to make him its chief executive earlier this year.
MEXICO DEAL
Shares in Santander were up 3%, against a 1% rise on the Spanish blue chip market, the Ibex.
On Tuesday, investors signed off at an extraordinary shareholder meeting on a capital increase of 2.6 billion euros to finance the acquisition of a 25% stake they don't own of its Mexican subsidiary.
The move in Mexico is part of efforts to increase focus on emerging economies while cutting costs to counter squeezed margins in mature European markets.
While record-low interest rates have prevailed in the euro zone for the past 10 years, rates in Mexico stand at 8.25%, the highest since the 2008 global financial crisis.
In Mexico, where it aims to make around a tenth of its profits after the deal, profit rose 20% in the quarter.
"We believe in Mexico, it economy and its financial sector, and we think this is an appropriate time to continue to invest in Mexico and our Mexican subsidiary," Botin said, adding that this country offered higher profitability than other markets.
Analysts highlighted a good set of underlying trends mostly driven by Brazil and stronger than anticipated net interest income and lower provisions.
Net interest income, a measure of earnings on loans minus deposit costs, was 8.95 billion euros, up 5.6% from the second quarter of last year and 3.1% higher against the previous quarter due to a solid lending growth in Latin America.
Analysts had forecast a NII of 8.76 billion euros.
In Brazil, where the bank makes more than a quarter of its profits, profit rose 18% from a year ago, boosted by solid growth in business volumes, while profits in the United States rose 36%.
Santander ended the quarter with a core Tier-1 capital ratio, a closely watched measure of a bank's strength, of 11.3%, compared with 11.23% in the previous quarter, in line with its medium-term target of 11-12%.
Santander's chief financial officer Jose Garcia Cantera told analysts the bank expected another 20 to 30 basis points of regulatory headwinds in the second half of 2019.
"But at the same time we would expect our capital to grow from here until the end of the year (...) our target is to get to 11.5 percent as soon as possible," Cantera said.