Govt’s Privatisation Ambitions Stall as Adani and Vedanta Face Increased Scrutiny

Of three dozen companies originally identified for sale, the government is left with a list of 17 – 10 unlisted and seven listed – companies largely because of legal and insolvency issues, Bloomberg reported.

New Delhi: With the Adani Group and Vedanta looking financially vulnerable, the Union government’s privatisation ambitions appear to have come to a halt.

Of three dozen companies originally identified for sale, the government is left with a list of 17 – 10 unlisted and seven listed – companies largely because of legal and insolvency issues, Bloomberg reported.

Of the listed companies in the government’s privatisation list, Vedanta is an interested party in at least four of them. These are Bharat Petroleum Corporate Limited Process, Container Corporation of India (Concor), NMDC Steel, and Shipping Corporation.

Of these, Adani is also an interested party in two companies – Concor and NMDC Steel.

However, the conglomerate has decided to not take on additional debt and focus on prepaying loans.

In less than a month after Hindenburg Research published its report, accusing the Adani Group of stock manipulation and accounting fraud, the conglomerate lost 60% of its stock’s value. The report slashed more than $100 billion of market value from the company.

Following the fall in shares, increased scrutiny on its offshore dealings, removal from several global indices, and opposition demand for a joint parliamentary committee probe, the Adani Group went on a course correction path by paying off debts, in an effort to build investor confidence.

And, the company is going slow on new investments. It’s already rethinking plans to participate in the privatisation of Concor, India’s leading freight rail operator, the report said. Bloomberg reported that Adani has shelved its ambition to acquire businesses like Concor.

In a February analyst call, Karan Adani, chief executive of Adani Ports, said the company’s “first order of preference” is to lower its debt before reconsidering the acquisition.

Meanwhile, Vedanta is struggling to settle about $2 billion of bonds due in 2024, the report added. The Vedanta companies have seen their share prices drop so far this year, another Bloomberg report said, adding that they are using more equity as collateral to borrow money.

Vedanta also considered selling its international zinc business to Hindustan Zinc Ltd for $2.98 billion to raise more capital. But the government opposed this decision over concerns of valuation. Hindustan Zinc is a subsidiary of Vedanta.

The Union government has also set a conservative target to raise funds through the divestment of state enterprises in fiscal year 2024, after mop-up fell short in the last fiscal, analysts told Reuters.

Since 2014, the government’s total disinvestment proceeds stand at Rs 4.7 trillion – or about a 10th of its proposed spending budget for 2023. And at current market valuations, India would only fetch about $13 billion from selling the seven listed companies, Bloomberg reported, citing calculations.

“Government firms are tying up scarce capital in unproductive concerns, which has ‘a high opportunity cost in a developing country such as India,’ Nandini Gupta, associate professor of finance at Indiana University‘s Kelley School of Business, told Bloomberg.

The government is yet to invite expressions of interest for Concor’s privatisation, while for NMDC Steel, financial bids are yet to be invited, the report added.

Privatisation of BPCL, which was dubbed India’s biggest ever, was stalled in May 2022 with just Vedanta left in the fray. The other two funds which walked out of the deal were US venture fund Apollo Global Management Inc and I Squared Capital Advisors, PTI reported.

Only the Tata Group-Air India deal was a successful example of privatisation in India.

According to Poonam Gupta, an economic adviser to Modi, to land more sales, the Union government must clear legal hurdles facing bidders, improve its technical expertise and urge states to take a proactive stance in privatising their assets.

“There is firm acceptance, in principle, of the need for more private ownership,” she told Bloomberg. “Yet the execution of privatisation is often a complex task.”