Post Covid-19, divestment plan set for a flying start

Post the pandemic miseries, the divestment process is all set to pick up pace now. The first set of two companies—Shipping Corporation of India (SCI) and Container Corporation of India (Concor) which are waiting to be privatised—has seen several Indian and foreign companies jostle for the government's stake and management control. The long delay in privatisation has not dampened their spirits.

The sale will add a minimum of ₹14,000 crore to the government kitty according to the current market price. More importantly, the keen interest shown by private firms in the two companies has now given enough confidence to the government to go full throttle with the divestment process.

The pandemic had thrown the government’s divestment plans out of gear during the year. The finance ministry had set a divestment target of ₹2.10 lakh crore for 2020-21, but most of the companies continue to be stuck due to various issues. Apart from the privatisation of SCI and Concor, the list also included the sale of Air India, the initial public offer of Life Insurance Corporation of India (LIC), and the stake sale in IDBI Bank and Bharat Petroleum Corporation Ltd (BPCL).

While the government hopes to sell its entire 63.75% stake in SCI, it will sell 30.8% stake and cede management control in Concor. It will retain the remaining 24% stake.

The stocks of the two companies that are linked to the country’s fluctuating foreign trade hit their respective 52-week highs on March 4, 2021, after they drew a clutch of companies at the formal expression of interest stage. Concor hit its yearly high of ₹643.90 per share, though it slipped subsequently to ₹547.25 as on March 18, reporting a total market cap of ₹33,344 crore. The sale of 30.8% will fetch a minimum of ₹10,270 crore for the government.

The SCI stock, too, hit its 52-week high on March 4 at ₹134.60 per share. Since then, it has also lost steam and dropped 21% to ₹107 per share as on March 18, clocking a market capitalisation of ₹4,984 crore. At the current market cap, the sale will fetch a minimum of ₹3,200 crore. On March 4, it could have been as high as ₹4,300 crore.

The SCI deal does not include the non-core assets (real estate) of the company located at Mumbai and Kolkata. The successful acquirer of the SCI stake will have to make an open offer for a further 26% in the company held by the public shareholders according to the takeover norms prescribed by the Securities and Exchange Board of India (SEBI).

The process of bidding is underway at the Department of Investment and Public Asset Management (DIPAM). The government has appointed L&L Partners as the legal adviser for the partial divestment of Concor, while Deloitte has been roped in as transaction adviser and RBSA Valuation Advisors as the asset valuer. The government’s shareholding in Concor is 54.8%. For SCI’s privatisation, the government has appointed RBSA as the transaction advisor.

SCI, established in October, 1961, by merging Eastern Shipping Corporation and Western Shipping Corporation, is India’s largest shipping company today, with a vastly diversified fleet of crude oil tankers, petroleum product carriers, liquefied petroleum gas carriers, bulk carriers, container ships, and off-shore support vessels.

It has attracted several global and domestic firms at the initial stage of bidding. Among the potential bidders are Prem Watsa’s Fairfax, U.S.-based Safesea Group (promoted by Indian-origin businessman S.V. Anchan), and Anil Agarwal’s Vedanta group (in a consortium); Great Eastern Shipping; Bain Capital-backed J.M. Baxi & Co.; and Darwin Platform Group of Companies (DPGC). Another consortium of Foresight Offshore Drilling Ltd S.A., Belgium-based Exmar NV, and Dubai-based GMS DMCC is also keen to take over SCI.

The shipping company with a fleet strength of 59 vessels is already in the process of de-merging or disposing of its non-core assets (mostly real estate) ahead of the stake sale and is carrying out corporate restructuring for better operational performance. The company owns and operates around one-third of India’s total tonnage, servicing both national and international trades.

SCI employs 3,281 people, comprising 2,627 working on board ships and 654 shore-based staff. Concor has a relatively smaller workforce of 1,400 people.

Concor has also attracted a clutch of potential bidders. Several Indian and global companies such as DP World, PSA International, Adani Group, Vedanta group, Canada Pension Plan Investment Board (CPPIB), Allcargo Logistics, and Gateway Distriparks are eager to take over Concor’s stake and management control.

The PSU commenced operations on November 1, 1989, under the railway ministry, taking over the existing network of seven inland container depots (ICDs) from the Indian Railways. Since then, it has set up a vast network of ICDs and container freight stations (CFSs).

The recent move by the railway ministry to reduce the existing high land-licensing fee is believed to have hastened the privatisation of Concor. Analysts had earlier raised concerns that the expensive lease rates may potentially stifle the privatisation efforts.

A potential bidder said that Concor has a big market share in both export-import and domestic containerised cargo, and holds potential to grow in the future, with its vast network across the country.

While Concor reported a drop in net profit in 2019-20, SCI clocked a net profit against the previous year’s loss. SCI reported a consolidated net profit of ₹336.48 crore excluding other comprehensive income (OCI) against a net loss of ₹62.66 crore in the previous year. It managed to absorb the losses of both the bulk and container segments which were offset by the profits of both the tanker and the offshore fleet. However, for the quarter ended December 31, 2020, it reported a 55.4% decline in consolidated profit at ₹131.57 crore.

On the flip side, Concor saw its consolidated profit decline 66.7% in 2019-20 to ₹406.65 crore as against ₹1,222.34 crore in the previous year. in the third quarter ended December 31, 2020, it reported a consolidated net profit growth of 29.5% year-on-year to ₹234.27 crore on 14.4% rise in total income to ₹1,842.11 crore.

The sale of two companies will spill over to the next financial year. Analysts hope the two will drive up confidence for the government to initiate the other bigger divestment projects.