Shipping containers sit on railway wagons in Nagpur, India. (Photographer: Dhiraj Singh/Bloomberg)

Coming Soon: A Policy Mandating Asset Monetisation By State-Owned Firms

For years, it has been said that public sector firms can unlock significant amounts of capital through asset sales. But they made little progress.

The Narendra Modi-led government is now planning to put in a formal policy, mandating the monetisation of assets by state-owned companies, a senior government official told BloombergQuint on the condition of anonymity. The policy, which the Department of Investment and Public Asset Management is working on, is expected to be finalised within the current financial year, the senior official said.

The policy will provide a framework within which asset-heavy public sector companies will be required to monetise their assets. It will also lay down a clear procedure to be followed. The idea is to have a steady release of capital from assets owned by government firms, along the lines of the dividend policy that these companies follow, the official quoted above explained.

According to the public enterprises survey for 2016-17, central public sector enterprises had gross fixed assets valued at Rs 14.4 lakh crore cumulatively. However, the fixed asset turnover ratio for these CPSEs has been on the decline. “...the ratio decreased from 3.28 in FY11-12 to 1.95 in FY16-17,” the survey said. The fixed-asset turnover ratio is the ratio of revenue from operations and fixed assets, and reflects how efficiently fixed assets are being used.

One sector where asset monetisation will be important is infrastructure.

“Asset monetisation can help government-owned infrastructure entities to recycle capital and generate funds to spend on new projects,” Sudip Sural, senior director at CRISIL Infrastructure Advisory, told BloombergQuint over the phone. Sural added that government spending, especially in infrastructure sectors such as roads, railways and construction, has been robust in recent years, but this puts pressure on government finances.

He cautioned that there are no “one-size-fits-all” solutions for asset monetisation.

The government will look at sector-specific frameworks as part of the broader plan, the official quoted above said. He said that the attractiveness of different kinds of assets to private investors will also need to be considered. The government intends to seek views from all stakeholders before finalising the framework, the official said.

The asset-monetisation strategy could focus on alignment of the policy objectives with sectoral goals, such as capacity addition or efficiency improvement, Manish Agarwal, capital projects and infrastructure leader at PwC India, told BloombergQuint.

“For example, the sector priority in aviation could be strengthening regional airports, while in railways it could mean attracting more freight,” Agarwal said.

Some of the central public sector enterprises with the highest fixed assets include ONGC, IOC, NTPC and Power Grid among others.

Don’t Just Monetise, But Recycle

Vinayak Chatterjee, chairman of infrastructure-services firm Feedback Infra, said that asset monetisation and asset recycling is the most relevant policy in the current times to help perk up investments.

“Mere monetisation is not enough because there is a fear that the funds so obtained may be squandered. It must be accompanied by a clear strategy of asset recycling that directs the funds received into the next generation of fixed assets for the country,” Chatterjee told BloombergQuint over the phone.

Chatterjee said that the government owns a huge amount of operating brownfield assets, like power plants, ports, airports, for which long-term investors like pension funds have a big appetite.

PSUs also have large land banks which are unused. “The government sees an opportunity of monetising these assets and garnering cash from it,” he added.

But this should not be mixed up with the general budget, and must be reinvested into fixed assets, Chatterjee added.