NBCC to buy four smaller PSUs from government
State-owned construction and real estate company NBCC Ltd might buy four smaller public sector enterprises engaged in similar activities. This could be the first of many mergers and acquisitions by state-owned companies in 2017-18 as the Narendra Modi government looks at consolidation to shore up revenues from disinvestment.
The four smaller firms which NBCC, a listed ‘Navratna’ company with a market cap of Rs 16,980 crore as of Monday, could buy are Hindustan Prefab, Engineering Projects India Ltd, NPCC Ltd, and HSCC. The Centre owns a 75 per cent stake in NBCC and a 100 per cent stake in others.
“These companies are involved in construction and project management consultancy. There are synergies, which can be combined to create a larger PSU that leads in its sector,” said an official.
Hindustan Prefab builds primarily prefabricated components for railway projects, Engineering Projects does turnkey projects, NPCC is involved in irrigation and hydel projects, while HSCC is concerned with health care infrastructure.
In his 2017-18 Union Budget speech on February 1, Finance Minister Arun Jaitley said that the government saw “opportunities to strengthen” PSUs through consolidation, mergers and acquisitions. He gave the example of the oil and gas sector. “We propose to create an integrated public sector ‘oil major’ which will be able to match the performance of international and domestic private sector oil and gas companies.”
Economic Affairs Secretary Shaktikanta Das had told that the details of the merger among energy PSUs could be announced very soon. However, NBCC’s merger with four PSUs could be the first one off the block.
While technically this would help the government meet its disinvestment target of Rs 72,500 crore in 2017-18, the fact is that such kinds of mergers would lead to listed PSUs paying the government to buy unlisted ones.
“It is more of a balancing act. Rather than going the whole hog and selling off companies and assets to private players, the Centre may be looking at consolidation. Selling stakes to private companies has not always been successful. Vedanta’s troubles with Balco are an example,” said Navin Agrawal, Partner and head of PSU advisory, KPMG India.
“The efforts here could be to try and make the PSU books look good, maybe consolidate and reduce the number of loss-making PSUs,” Agrawal said.