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PSU and USP

K. Ramesh

UNIQUE Sale positioning (USP) is not only the general marketing technique meant for competing products, but, applies equally to sale of equity in public sector undertakings (PSUs), if one works backwards from the recent controversy over the sale of Balco 's shares.

In Balco's majority disinvestment, in addition to other issues on valuation, sale of tribal lands, etc., the Opposition wants a policy reversal restricting the sale only up to 49 per cent. The policy on sale of shares of PSUs, apart from being strange, s uffered frequent shifts, and despite the trial-and-error method, the Government is unable to accomplish its divestment targets in many years.

Tracing the history, a decade back, the Industrial Policy, 1991 announced sale of public sector equity, as part of public sector reform, in line with the overall economic reforms initiated. The policy decision was inevitable as, barring a few gems called Navratnas, tens of thousands of crores invested in PSUs yielded less than 1.6 per cent return on capital, eroding continually the resources. These apart, successive governments treated sale proceeds of PSU shares as source of revenue to contain fiscal d eficit.

In the initial phase, the Government resorted to `bundling' concept. By this, it continued to retain controlling block in PSUs and sold in ``bundles'' the equity shares of good and poor performers. This way, the average price realised per bundle was extr emely low. Further, this approach resulted in premium shares being sold at heavy discounts -- an opposite of what the Government intended to do: Sell the under-performers at reasonable prices!

The second stage was one of `privatisation' as opposed to mere disinvestment, a remedy started, once `bundling' ended with disastrous results. In terms of this, the Government decided to bring its stake below 50 per cent and even below 25 per cent in som e cases, in line with the state's objective of withdrawing from non-core and non-strategic areas. Sale of bulk quantity of shares this way would also provide greater incentive to the private sector.

Post-formation of the disinvestment commission, the Government canvassed the `strategic sale' theory whereby blocks of equity would be sold to single investors with transfer of management to private sector. **A classic case is the recent Balco deal, wher e the opponents **wanted the sale to be reduced from 51 per cent to 49 per cent, thus diluting the veto power of private sector in management.

The experience of these peculiar techniques generally resulted in realisation of low prices on premium shares, sale of efficient assets, contrary to the intended policy or ceding management control, even in situations where the investor does not hold maj ority stake. In spite of this, the Government is unable to meet the targets on divestment proceeds, excepting for three years -- 1991-92, 1994-95 and 1998-99.

The achievement 1991-92 was due to offloading premium shares at discount because of the `bundling' concept. The success of 1994-95 was due divestment of bulk quantity of equity in good performers. In 1998-99, interestingly `cross-holding' provided the ne eded revenue. By cross holding, the PSU shares are not really sold to private sector, but purchased by another cash-rich PSU. While the Government gets the money, **it retains control through another PSU! This way, the so-called restructuring of stand-al one oil companies, by marketing PSUs, is expected to fetch Rs 1, 500 crore during this year.

Whatever be the technique, to think that sale of PSU shares is the only method of reform, reflects a closed mind. Treating process of disinvestment as revenue in budgets creates pressure in selling, apart from being fiscal imprudence; the capital proceed s could be used to consolidate and revitalise Navratnas. Worse, capitalising a political mileage out of this, by stalling the process is perverse, and against national interests.