View from Delhi: Privatisation issue is still not settled

Indian companies, government as well as private, detest being bought and sold like cattle. They put up a stiff fight at every stage, and move heaven and earth to force predators to leave them in peace.

There have been several such cases recently. Larsen & Toubro, a leading engineering and cement company with a turnover of nearly Rs 90 billion last year, refuses to give in easily to attempts by the Aditya Birla group to take it over.

Two government companies, Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corpn (HPCL), almost created a political crisis after the government decided to privatise them. The entire Opposition walked out of Parliament when the decision to dilute the equity was announced.

Larsen and Toubro is a professionally managed company which was once close to the Ambanis of Reliance. Reliance sold its holding of about 10 per cent to Grasim Industries of the Birla group. Two directors of Grasim, Kumaramangalam Birla and his mother, Rajashree, sit on the board of L&T.

Two months ago, Grasim made an open offer to L&T's shareholders to buy up to 20 per cent of shares, which would hike its stake to nearly 35 per cent, enough to give Birlas management control of L&T. Grasim, though basically a textile firm, also produces cement, though much less than L&T, which happens to be the biggest cement producers in India.

L&T management has now fought back and said that it is hiving off its cement business to a new company, and is also wooing a foreign partner. It also got Grasim's public offer annulled.

When the new cement company is formed, Birlas will be reduced to a small minority, as the bulk of shares will still be held by L&T. Birlas have now sent a legal notice to L&T which the latter says is invalid.

BPCL and HPCL are 100 per cent government companies whose main business is oil refining and marketing. They have been good at it and make good profits. When the government decided to put them on the privatisation track, the oil ministry opposed the move, arguing that there was no need to privatise profitable companies. There were sharp differences within the Cabinet and the final decision was left to the prime minister.

This was three months ago. Last week, a compromise solution was hammered under which a portion of the equity of both companies will be sold off, though in different ways. HPCL will be divested through sale of equity to a strategic partner, while BPCL will sell its shares to the public as well as its employees.

There are also restrictions on how the proceed of sale will be utilised and who will manage the companies. The government will still retain a big chunk of their equity and will be answerable to Parliament, though for all practical purposes they will be private companies.

Incidentally, though the two oil companies are now government-owned, they were actually acquired from their foreign owners, BPCL from Shell and HPCL from Esso, now Exxon. Shell says that it will bid for both companies and may acquire at least one of them, probably the same company it lost 30 years ago.

The Reliance group, which is now a major player in the petroleum industry will also be in the race, though there are moves to keep it out.

The market is in two minds about the whole divestment affair. In the case of L&T, the shares are now quoted around Rs200, which is slightly less than what the Birlas have offered, though not as much as Rs306 at which the Birlas purchased them from Ambanis.

The Sensex is taking it all in its stride. It is now hovering around 3,300, the same as before the controversy broke. There are, however doubts about what may really happen at the end of the day.

In India, privatisation is a political, not economic issue, and who knows what politicians will do?

The writer is a noted Indian columnist. Here he does a weekly round-up of the Indian economic scenario.