India’s privatisation drive derails because of weak investor interest

NEW DELHI: India is considering shelving three planned privatisation sales amid weak investor appetite, two government sources said, a slump that has already derailed its attempt to sell a stake in IDBI Bank and is a fresh blow to the government’s flagship  divestment programme.

The privatisation plan, delayed for years, is now facing fresh setbacks that include dwindling interest in state-run firms such as Shipping Corporation of India and HLL Lifecare, besides the collapse of the IDBI Bank stake sale last week after bids fell short of the government’s minimum price.

India’s finance, shipping and health ministries and the companies did not respond to Reuters’ queries.

Prime Minister Narendra Modi’s ambitious privatisation plan was aimed at having the state exit most sectors while remaining only in sensitive ones such as telecom and banking. But the government could only sell Air India to Tata Sons, and indirect holdings in steel-maker Neelachal Ispat Nigam Ltd to Tata Steel, and Ferro Scrap Nigam to Konoike Transport Co.

Also read: India government sets deadline for financial bids for IDBI, sources say

The initial delays to the plan came from bureaucratic red tape and political pushback after Modi failed to secure a full majority in 2024 elections and had to rely on regional allies to form the government.

Dwindling buyer interest

India had invited bids to privatise Shipping Corporation in 2020 and received interest from multiple bidders, but a later review found the shortlisted bidders were ineligible to acquire the firm, the two government sources said.

The divestment department has since proposed scrapping the sale and either restarting the process, or exploring a merger with Container Corporation of India to integrate the logistics chain, the sources said.

The government had also targeted privatising Container Corporation of India in 2021-22 but never launched the sale.

Another state-run firm, HLL Lifecare, was put on the block in 2021 and financial bids were invited for the sale. However, interested bidders declined to move ahead with the process and sought changes in the sale offer terms, both the sources said, without giving details.

The government is however yet to take a final call on shelving the current stake sale plans in these three state-run companies, one of the two sources said.

The details of the sales processes of these three state-run firms have not been previously reported.

Operational inefficiencies, unclear asset transfers and high government pricing expectations, coupled with limited incentives, are keeping investor interest weak and stalling privatisation, said Ankur Wahal, director at professional services firm En Pointe Adwisers.

Higher valuation

IDBI Bank’s scrapped sale derailed what was seen as a model for future bank privatisations, after a high reserve price and Middle East-related geopolitical uncertainty curbed investor interest, an industry source said.

Also, the lack of protection for liabilities such as pension and gratuity dues further deterred investors.

The failed sale will likely hit divestment receipts for the next financial year, starting April? 1, Wahal said. India has targeted 800 billion rupees ($8.66 billion), in asset monetisation and divestments, with a significant portion earlier expected from IDBI Bank.

This comes as the Middle East crisis threatens to raise India’s oil import bill, adding pressure through higher inflation and a wider current account deficit.

“The government’s privatisation plan has hit a wall,” said N.R. Bhanumurthy, director at the Madras School of Economics. Potential bidders will be interested in acquiring state-run companies if valuations are attractive, he said.