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
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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.


BMW picks insider Zipse as CEO to catch up with rivals

Oliver Zipse
Updated 37 min 50 sec ago
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BMW picks insider Zipse as CEO to catch up with rivals

  • German giant has lost ground to Mercedes-Benz and Tesla as tech steps up

FRANKFURT: BMW has named Oliver Zipse as its new CEO, continuing the German carmaker’s tradition of promoting production chiefs to the top job even as the auto industry expands into new areas such as technology and services.
Hailing Zipse’s “decisive” leadership style, BMW hopes the 55-year-old can help it win back its edge in electric cars and the premium market  from rival Mercedes-Benz.
But some analysts questioned whether Zipse was the right choice with new fields such as software and services like car-sharing becoming increasingly important.
“What is intriguing is the cultural bias to appoint the head of production. It works sometimes but ... being good at building cars is not a defining edge the way it was 20 years ago,” said Jefferies analyst Philippe Houchois.
Current CEO Harald Krueger, and former chiefs Norbert Reithofer, Bernd Pischetsrieder and Joachim Milberg were all former production heads.
Zipse joined BMW as a trainee in 1991 and served as head of brand and product strategies and boss of BMW’s Oxford plant in England before joining the board.
He will become chief executive on Aug. 16, taking over from Krueger who said he would not be available for a second term.
“With Oliver Zipse, a decisive strategic and analytical leader will assume the Chair of the Board of Management of BMW. He will provide fresh momentum in shaping  the future,” said Reithofer.
Zipse helped expand BMW’s efficient production network in Hungary, China and the US, in a move that delivered industry-leading profit margins.
Under Krueger, BMW was overtaken in 2016 by Mercedes-Benz as the best-selling luxury car brand.
It also had an early lead over US  rival Tesla in electric cars, but scaled back ambitions after its i3 model failed to sell large numbers.
Reithofer initially championed Krueger’s low-key consensus-seeking leadership, but pressured him to roll out electric vehicles more aggressively, forcing Krueger to skip the Paris Motor Show in 2016 to reevaluate BMW’s electric strategy.
Krueger’s reluctance to push low-margin electric vehicles led to an exodus of talented electric vehicle experts, including Christian Senger, now Volkswagen’s (VW) board member responsible for software, and Audi’s Markus Duesmann, who is seen as a future CEO of the company.
Both were poached by VW CEO Herbert Diess, a former BMW board member responsible for research who was himself passed over for BMW’s top job in 2015.
VW has since pushed a radical 80 billion euro ($90 billion) electric car mass production strategy, and a sweeping alliance with Ford.

Other skills
“A CEO needs to have an idea for how mobility will evolve in the future. This goes far beyond optimising an existing business,” said Carsten Breitfeld, chief executive of China-based ICONIQ motors, and former BMW engineer. “He needs to build teams, attract talent, and promote a culture oriented along consumer electronics and internet dynamics.”
German manufacturers have dominated the high-performance market for decades, but analysts warn shifts towards sophisticated technology and software is opening the door to new challengers.
“Tesla has a lead of three to four years in areas like software and electronics. There is a risk that the Germans can’t catch up,” UBS analyst Patrick Hummel said.
Germany’s Auto Motor und Sport car magazine, normally quick to champion German manufacturers, this week ran a cover questioning BMW’s future.
“Production expertise is important, but if you want to avoid ending up being a hardware provider for Google or Apple, you need to have the ability to move up the food chain into data and software,” a former BMW board member said.