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BPCL, Concor sale to bring $15-20 bn to fisc: Saurabh Mukherjea

Finance Minister Nirmala Sitharaman is doing a stellar job under difficult circumstances.

ET Now|
Nov 21, 2019, 12.38 PM IST
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If India can pull off the privatisations in the next 3-6 months, that’s a tremendous news for the fisc, for the bond market and in turn for the whole macro economy, says Saurabh Mukherjea, Founder and CIO, Marcellus Investment. Excerpts from an interview with ETNOW.

What are you making of the series of announcements that came in last night? The government has clearly decided to go full steam ahead on the divestment agenda. How soon do you think they are going to manage to roll this out?
A lot of credit goes to the finance minister. From August onwards, she has been very clear that they will do whatever it takes to pull the economy out of the morass that we find ourselves in. As I was watching the announcement last night, it reminded me watching Rahul Dravid bat in one of India’s overseas test matches in the 90s. Wickets fell all around him but he carried on batting and held up the fort for India. In a somewhat similar situation, Finance Minister is doing a stellar job in difficult circumstances.

It is hard to say how quickly they can expedite these privatisations given that she has scale of BPCL, Concor. But I am pretty sure BPCL and Concor will be sought after assets. Clearly the government’s fiscal situation suggest that they would expedite these privatisation sooner rather than later. These are big assets. I am sure we will see major interest from large investors across the world. I think the Russians will be interested, the Saudis will be interested, BPCL will be a sought after asset. It is difficult to say whether they can pull it off this fiscal, but if they can, then it is superb news for fisc. Anywhere around 100,000-150,000 crore will be released and that will be a big shot in the arm for the fisc.

It would pull down the 10-year government bond yield that in turn will help with rate transmission. It is a big challenge that India has faced in the last 18 months. RBI is cutting rates but the banks simply are not passing it on, because the government is borrowing so much money in the bond market that it is dragging up the 10-year bond yield.

If India can pull off these privatisations in the next 3-6 months, that’s a tremendous news for the fisc, for the bond market and in turn for the whole macro economy.

The market had already priced in BPCL divestment. The stock has already run up over 50% in the last three months. What happens now? Would it be imperative for the market to know the math -- who is going to be the buyer, what is at stake, how much the government get in its kitty for the stock to move higher?
I am not so sure how easy it will be for people to take a punt on these stocks. These are obviously strategic, complex assets. It is one thing the Government of India owning BPCL, it is a completely different matter whether a private sector company from the west or indeed a sovereign like Saudi Aramco would be in BPCL because environmental risk, regulatory risk, policy risks make it a very difficult for a non-sovereign to own a complex asset like BPCL or indeed own 52% of a company like Concor.

If India can pull off these privatisations in the next 3-6 months, that’s a tremendous news for the fisc, for the bond market and in turn for the whole macro economy.

-Saurabh Mukherjea


Concor is in a way, part regulator part service provider and that role is quite complex. It is not easy for me to give you off the top of my head view on what is the fair value of these assets. Would you make money if you buy the stock today? I do not know! It is easier to say that from a macro perspective, this is a stellar news. This is the government showing a lot of steel, a lot of courage going ahead, announcing big privatisations.

You said the Chinese, Russians and Saudi Aramco possibly could be interested in some of these assets. What do you make of the valuation?
I can sort of see that if Concor’s 52% and the BPCL sale go through this year, then we are looking at $15-20 billion coming into the fisc. That is 7.8% of GDP and it will take us a long way towards plugging the fiscal gap. I think $15-20 billion will probably make it the largest ever disinvestment receipts in India and it will set a new benchmark.

Remember, alongside this, the government has also listed EIL and three-four other CPSEs where they are going to do OFSs. This is not the only amount, there is potentially other smaller stakes in other public sector enterprises coming on to the market. The relief in the government bond market should be considerable and that has a very tangible effect on the lending ecosystem in our country I think that is probably just as powerful as the bullishness that last night’s announcement injects. The relief it will give to the bond market and today’s transmission is very tangible. We should look at that over the next three-four months to see where the money starts flowing more easily in the lending ecosystem.

Remember you are facing an unprecedented situation in our country. Commercial lending activity as per the RBI data is down something like 80-90% YoY. It is unbelievable that what has happened in the last six-seven months. Commercial lending falling so sharply in a large free market economy is without any precedent. Hopefully we will now start reversing that situation.

The other big announcement which has come in is the big relief for the telecom sector. The finance minister cleared the two-year moratorium on spectrum payout.Is this relief enough or would you say that the continuing niggling issue is the AGR payment and that is where the sector will grapple with AGR payment ?
Two things; one is obviously immediate relief for the lenders who are on the dock for putting up this money. These include both public and private sector banks. But if we take a two-three-four year view, it is difficult to see how we will get fresh investment in Indian telecom with this overhang.

If we do not get fresh investment in the sector, you will basically get duopolies in the sector. There will be Jio and potentially Bharti Airtel. If you want to add Vodafone Idea, you have a three player sector at best. So whilst it is a relief for telcos and relief for the lenders and some sort of relief rally in these stock prices, it is difficult to see how Indian telecom will attract investments for many years to come. It has been a nightmarish situation for a premiere sector to have gone through and it will scare away a lot of people from investing in Indian telecom for a long time to come.

Some would argue disinvestment in this kind of an environment also smells of desperation?
There is a long history in our country of the most momentous economic reforms coming at times of economic difficulty. That is the way it is with most large free market democracies. The construct of democracies is such that unless economically the situation is really difficult, politicians rarely take tough decisions. Whether this is a desperate decision or a brave decision, we should not care too much about as investors. As rationale people, we should see this is a step forward for the country. The Government of India is getting out of activities where it is not obvious what role the sovereign should play.

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