Photo: Mint
Photo: Mint

Opinion | The contours of a sustainable disinvestment platform

We need a Temasek-like entity that functions independently of its owner, the government

Budget 2019 has again put the focus on disinvestment. To place it on a sustainable platform, there is a case to re-look the organizational structure for disinvestment. As things stand, the work of the department of investment and public asset management (Dipam) is hamstrung by a number of institutional impediments. Temasek Holdings offers an inspirational model.

Dipam’s limitations begin with a lack of technical expertise, staffed as it is entirely by civil servants with no prior experience of capital markets. Mere administrative acumen is insufficient to extract the best value from assets built assiduously. Transferable jobs detract from institutional memory and specialization. The lateral induction drive of the government ought to have zeroed in on Dipam. The system, however, does not trust outsiders with sensitive work.

That said, the best investment bankers would fall short were they to work within the confines of the financial rules and office procedures of India’s government. Hiring merchant bankers and advisers through open advertisements, convening inter-ministerial meetings, obtaining cabinet approvals to undertake transactions are the kind of giveaways that make insider trading redundant.

The oversight of the Comptroller and Auditor General and the Central Vigilance Commission, and the dragnet of the Central Bureau of Investigation preclude deviating from precedence, subjective calls, risk-taking or innovation. While initial public offers, offers for sale, follow-on public offers and exchange-traded funds are the usual disinvestment methods, bulk deals and institutional placement plans are hot potatoes.

The overlapping remit of Dipam and administrative ministries controlling different central public sector enterprises (CPSEs) and the independent roles of companies and their boards make the disinvestment process convoluted.

A litany of other issues detract from savvy disinvestment. There is no political consensus on strategic sales leading to privatization. There are no accepted valuation norms that pass the test of post-facto scrutiny of audit and anti-corruption agencies. Past disinvestments have risen from the grave to haunt key protagonists after retirement. Strategic sales are tedious, and consume time and effort disproportionate to returns in a target-oriented system. Staff unions and officer associations of CPSEs fight subversive battles. Past investors haven’t had it easy, be it in VSNL, Centaur, HZL or Balco.

The dream solution would be if the government exits ownership without ruffling feathers, and companies take flight as professionally managed and commercially driven business entities.

Temasek, owned by the government of Singapore, provides a compelling model. This is a known solution that has never crossed the bureaucratic Rubicon in India. It beckons the attention of the political executive, though it will take some working beyond what the bureaucracy will suggest. It is worth highlighting some key attributes of Temasek now that we have a government not shy of pursuing an offbeat agenda.

Temasek was created in 1974 to hold and manage the Singapore government’s assets. Guided by business tenets, it operates with full flexibility without the involvement of its shareholder—the government. This will be akin to India’s government transferring ownership of all CPSEs to an entity mandated to make strategic investments and sales on a commercial basis. The transfer to a state-owned company would also blunt the politically sensitive issue of privatization.

Temasek is both an active shareholder and investor, and rebalances its portfolio from time to time. Decisions to invest, divest or hold portfolio companies are based on its intrinsic value test. It is important to understand that to be either a buyer or seller and not both comes with costs. A mandate to buy and sell is critical. Otherwise, the market games you, as it does the Dipam, which only sells.

The Temasek portfolio covers a broad spectrum of sectors such as financial services, telecommunications, media and technology, transportation, life sciences, consumer, real estate and energy. This ought to be the case with its Indian counterpart.

Temasek operates under the provisions of the Singapore Companies Act. The catch is that it is designated a Fifth Schedule entity under Singapore’s constitution, with certain safeguards. For instance, drawing on Temasek’s past reserves and the right to appoint, terminate or renew board members are subject to the approval of the president of Singapore. If the Indian counterpart were to be similarly structured, it would transcend the susceptibilities of a CPSE to political and bureaucratic interference.

Temasek’s board comprises 13 members—mostly non-executive and independent business leaders from the private sector. It has a multinational team of nearly 500 people and manages a net portfolio of over $230 billion. Such an independent board, a multinational team and an international canvas will need to be provided in our case.

The call then is to create a Temasek-like entity, transfer ownership of CPSEs to it and allow it to function independently of the government as both a holding and an investment company. This can be done either by creating a new company, or by enlarging the mandate of the National Investment and Infrastructure Fund, which avoids stepping on the toes of Dipam as good bureaucratic practice, their synergies notwithstanding.

Ashok Pal Singh is a member of the Postal Services Board and was formerly a joint secretary in Dipam.

These are the author’s personal views

Close