Govt looks to sell stakes in some listed railway firms

The Union government is looking to sell some of its shares in listed railway companies to raise money, three people aware of the plans said, at a time the disinvestment target for the fiscal year looks increasingly out of reach.

The railway ministry has asked public sector companies under its ambit to consider whether they can sell new shares to raise capital, with the government also selling some of its shares, the people cited above said on condition of anonymity. The move comes after the cabinet recently granted greater freedom to the boards of central public sector undertakings to pursue stake sales.

Depending on market conditions, bluechip railway companies such as Indian Railway Construction Ltd, Rail India Technical and Economic Services Ltd, and Rail Vikas Nigam Ltd may be among the first to sell shares, but other listed entities such as RailTel Corp. of India Ltd, Indian Railway Catering and Tourism Corp. Ltd (IRCTC) and even Indian Railway Finance Corp. Ltd (IRFC) may explore the possibility, one of the three people cited above said.

With just five months left in the fiscal, the public listing of Life Insurance Corp. of India and the offers for sale of some companies have collectively raised just ₹24,543.67 crore, far below the ₹65,000 crore disinvestment target for FY23.

The six railway PSUs went public over the last three to four years, with the government’s shareholding in them ranging from 67% in IRCTC to over 86% in IRFC. The government may sell up to 10% of its stake through market offers, the people cited above said. At current market prices, a 10% sale in all six PSUs would fetch about ₹12,000 crore.

Queries sent to the ministries of finance and railways remained unanswered till press time.

The boards of these companies are expected to discuss and finalize the plans soon, but the timing of such issues would depend on market conditions, the second person said. The railways has not yet decided on initiating listing and divestment of stakes in other PSUs such as Dedicated Freight Corridor Corp. of India, Konkan Railway Corp., and Mumbai Rail Vikas Corp., this person said, adding that decision will be taken later.

The boards of CPSEs were recently empowered to decide on minority stake sales, strategic disinvestment and sale of their subsidiaries, as well as the sale of their stakes in joint ventures, the third person said. CPSEs can send such proposals to the line ministries, who then recommend it to the department of investment and public asset management (Dipam), which then proposes the same to a so-called alternative mechanism—an empowered group of ministers comprising Union roads and highways minister Nitin Gadkari, finance minister Nirmala Sitharaman, and minister of the administrative department or respective ministry—for in-principle approval. Following the approval, the CPSE is directed by the respective ministry to undertake the transaction.

Dipam last month outlined rules for CPSEs to undertake various transactions, including strategic sales with the transfer of management control or privatization, structuring the core and non-core assets, road shows to gauge bidder interest, addressing pre-bid queries, due diligence including security clearance of qualified bidders, transparent and competitive bidding and completion of transaction through a share purchase agreement and transfer of shares.

The processes are similar to the steps currently being undertaken by Dipam for disinvestment of CPSEs, including strategic disinvestment with or without transfer of management control and offer for sales for selling minority stakes. In case of a stake sale in one CPSE, with or without management control, to a state or another central or state PSE, approval of the alternative mechanism has to be taken at the time of taking in-principle approval after giving adequate justification.