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Focus on PSUs: Govt looks to boost market cap of state-run firms

Prasanta Sahu

With the listed central public-sector enterprises (CPSEs) losing about `2.33 lakh crore in market value in little over a year, the government is working on an action plan to restore and boost the m-cap of these entities. As part of this, some of the firms may be asked to list their subsidiaries. Also, CPSE staff may be rewarded with employee stock ownership plans (ESOPs) similar to such performance-boosters in the private corporate sector.

The market capitalisation of listed CPSEs (there are 55 of them) stood at `12.89 lakh crore on May 17, 2019, down 15.3% from `15.22 lakh crore as on March 31, 2018. During the same period BSE m-cap rose 3.05%. Besides assorted policy obligations on these firms which make it difficult for them to operate in a commercial environment, the shrinking of m-cap of CPSEs is also due to fierce competition from private sector which they find it difficult to put up with.
Among them, 257 CPSEs (listed and unlisted) saw their aggregate net profit grow at a muted 2.3% in FY18 compared to 9.86% in the previous year, largely due to steep 12% decline in other income while raw material cost also rose 15%.

So, a recovery in the valuation of CPSEs would help the Centre maximise revenue from strategic disinvestment/minority-stake sales in these companies.
Most of the listed CPSEs have unlisted subsidiaries on just book value such as ONGC s arm ONGC Videsh. The department of investment and public asset management s (DIPAM) plan is to ask these CPSEs to list their subsidiaries to unlock their real market value. The moment the CPSEs list their subsidiaries, the parent companies value will go up, a senior official told FE.

The CPSEs could also sell a portion of their holding in subsidiaries and use the proceeds to give dividend to shareholders and/or buy back shares from the government and other shareholders .

Unlike in the private sector, the CMDs/MDs and other managerial people in CPSEs do not have a skin in the game… most of them are happy with their salaries and are not bothered about market price/valuation of the companies, the official said, adding that properly designed ESOPs could address the issue. Another proposal is to include market capitalisation as one of the targets in the customary memoranda of understanding (MoUs) that the CPSEs sign with the Department of Public Enterprises. The parameter could be assigned a 20% weightage in the basket of parameters under such MoUs.

This means that a slippage in the performance on this count could result in a firm s rating downgrade and consequent reduction in variable pay of its staff. Currently, performance-related pay can be as high as 200% of basic pay for CMDs while it is 40% for the lowest grade officers if the rating of the PSU performance is excellent . A downgrade would bring down MoU rating from excellent to very good and very good to good , resulting in reduction from 100% eligibility of performance-linked pay to 80% and 60%, respectively. Most of performance-related pay to employees can be given via ESOPs to increase their stake in the overall performance of the company, another official said