Modi govt may close NTPC-SJVNL, IOC or BPCL-GAIL M&A deals in FY20  

At least two PSU merger and acquisition deals would be concluded by the government in the current fiscal to reach closer to the higher disinvestment target of ₹1,05,000 crore.

Top sources in the government said that the deal where the NTPC will buy the entire government stake in hydro-power generator SJVNL and another involving either the Indian Oil Corporation or the Bharat Petroleum Corporation buying out marketing operations of GAIL may be concluded this year.

Together the two deals could provide close to ₹25,000 crore to the Centre for selling its entire equity in the target company.

The government's 88.78 stake (including Himachal Pradesh government's 26.85 per cent stake) in the SJVNL is worth around ₹8,500 crore at current price of the company's share on bourses. The value of Centre's 52.68 per cent stake in undivided GAIL, at prevailing market price of shares, is around ₹16,000 crore.

The government is looking to bifurcate GAIL (India) into marketing and transportation (gas pipeline) units. One of them, mainly the gas marketing operation, will be merged with another state-run oil company after it buys the entire government equity in the target entity.

The government has decided to offer even the gas transportation operation of the bifurcated GAIL to a strategic buyer. If this is also concluded this year, the government could mobilise an additional ₹8,000-10,000 crore.

It is worth mentioning that refiners IOC and BPCL had in 2017 evinced interest in acquiring GAIL to expand their gas marketing business. This makes sense even now as government's green drive would increase the use of gas as fuel in the market.

GAIL is India's biggest natural gas marketing and trading firm and owns more than two-thirds of the country's 16,234-km pipeline network, giving it a stranglehold on the market. Its marketing business formed 76 per cent of its 2018-19 total sales and about 30 per cent pre-tax profit.

With regards to the SJVNL, the disinvestment department DIPAM (Department of Investment and Public Asset Management) has written to the Power Ministry to explore its merger and acquisition with the NTPC, the country's largest power producer. Sources said that plan is also to include the NHPC under PSU consolidation exercise later.

The government has expressed its resolve to continue with PSU consolidation with Finance Minister Nirmala Sitharaman making a case for it in her budget speech.

The National Democratic Alliance (NDA) government's focus on streamlining operations across public sector units, saw two deals being concluded last year. While the Oil and Natural Gas Corporation (ONGC) acquired the government's stake in the Hindustan Petroleum Corporation Ltd (HPCL) for ₹36,915 crore, Power Finance Corp Ltd (PFC) completed the purchase of a controlling stake in state-run peer REC Ltd for ₹14,500 crore in March this year.

The merger and acquisition deals as part of PSU consolidation will be big part of government's disinvestment agenda in FY20. This is required for DIPAM to meet the increased disinvestment target of ₹1.05 lakh crore this year from the earlier ₹90,000 crore.