Govt working on action plan to boost PSUs’ market value

New Delhi: As Public Sector Undertakings (PSUs) lost around Rs 2.33 lakh crores in market value in little over a year, the Centre is working on a multi-pronged action plan to improve the market capitalisation of state-owned enterprises. The government is now considering asking some of these firms to list their subsidiaries and introducing an employee stock ownership plan (ESOP) for PSU employees on the lines of the performance boosters offered in the private sector.

Market capitalisation of listed CPSEs went down by 15.3%

The market capitalisation of the 55 listed PSUs was at Rs 12.89 lakh crore on May 17, down 15.3 percent from Rs 15.22 lakh crore as on March 31, 2018. During the same period, the Bombay Stock Exchange (BSE) m-cap stood at 3.05 percent. Apart from the fact that PSUs have assorted policy obligations that make it difficult for them to operate in a commercial environment, the squeeze in m-cap has also been attributed to their inability to put up with the fierce competition posed by the private sector.

The net profit of around 257 PSUs (both listed and unlisted) grew by 2.3 percent in FY18 as opposed to 9.86 percent in the previous year, primarily due to a steep 12 percent decline in ‘other income’ and a rise of 15 percent in raw material cost.

Getting them listed

Most of the listed public sector companies have subsidiaries that are unlisted, such as ONGC and ONGC Videsh. The department of investment and public asset management’s (DIPAM) is now planning to ask these PSUs to list their subsidiaries in order to unlock their real market value. “The moment the CPSEs’ list their subsidiaries, the parent companies value will go up,” a senior official said.

This would also allow PSUs to sell chunks of their holding in the subsidiaries and use the proceeds to give a dividend to shareholders and/or buy back shares from the government and other shareholders.

Can an ESOP help?

While noting that CMDs/MDs and other managerial people in PSUs are not bothered about market price/valuation of the companies because they don’t have a skin in the game, the official said that the government is considering properly designed ESOPs to address the issue.
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The Centre is also mulling including 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 percent weightage in the basket of parameters covered under the MoU.

This will tie up the company’s performance to a firm’s rating downgrade and consequent reduction in variable pay of its staff.