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.

The slump in investor interest has already derailed the country’s 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, which include dwindling interest in state-run firms such as Shipping Corporation of India and HLL Lifecare.

The IDBI Bank stake sale last week did not go through after bids fell short of the government’s minimum price.

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

Prime Minister Narendra Modi’s ambitious privatisation plan was aimed at having the state exit most sectors, while remaining in sensitive ones such as telecommunications and banking.

But the government could only sell Air India to Tata Sons, and indirect holdings in steel-maker Neelachal Ispat Nigam to Tata Steel, and Ferro Scrap Nigam to Konoike Transport.

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

Lack of progress

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

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The sources added that 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 government had also targeted privatising Container Corporation of India in 2021 to 2022, 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 has yet to take a final call on shelving the current stake sale plans in the three state-run companies, one of the two sources said.

The details of the sales processes of the firms have not been previously reported.

Ankur Wahal, director at professional services firm En Pointe Adwisers, said that pricing expectations, coupled with limited incentives, are keeping investor interest weak and stalling privatisation.

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 Apr  1, Wahal added.

India has targeted 800 billion rupees (S$11 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. He added that potential bidders will be interested in acquiring the state-run companies if valuations are attractive. REUTERS