Modi govt would do well to rethink on national asset monetisation involving powerful global asset managers

The Central government’s Rs 6 trillion ($81 billion) asset monetisation plan may prove to be a huge disaster if it goes in the hands of global fund managers. The immediate reason behind the proposed large-scale asset monetisation is known. The government does not have funds to bear the massive cost of the National Infrastructure Pipeline (NIP). Therefore, it wants to monetise a chain of national assets to partly cover the NIP cost.

The pandemic has left a big scar on India’s economy. The demand continues to be down. So is the supply. Assuming that the pandemic’s impact may die down in a year or two, business and industry may take even a longer period to return to their old rhythm.

Did the government speak to potential local investor groups to measure their mood and desire to participate in such a large-scale national asset monetisation programme? If so, the country’s tax payers, who funded the creation of such wealth over the years under various Central ministries, have a right to know.

Instead, the government has named some of the big global asset managers such as Blackstone, BlackRock and Macquarie for showing interest in participating in the monetisation process. Not all are known to have handled their international clients as desired and passed the test with aplomb.

It may be worth noting the accusation by a United Nations body against the Blackstone Group, one of the world’s largest corporate residential landlords, of exploiting tenants, “wreaking havoc” in communities and helping to fuel a global housing crisis. Recently, a UN Working Group singled out Blackstone’s business practices – which they claim include massively inflating rents and imposing an array of heavy fees and charges for ordinary repairs – as having “devastating consequences” for many tenants in countries around the world.

In a series of letters to Blackstone and government officials in Czech Republic, Denmark, Ireland, Spain, Sweden and the US, the working group accused private equity and asset management firms like Blackstone and its subsidiaries of undertaking “aggressive evictions” to protect its rental income streams, shrinking the pool of affordable housing in some areas, and effectively pushing low and middle-income tenants from their homes.

Although Blackstone disputed these claims, it has, in recent years, acquired hundreds of thousands of homes in the US, Europe, Asia and Latin America, often through subsidiaries, making it one of the largest and most powerful global players in the housing investment sector. In the Netherlands, the US real estate investor was accused of keeping hundreds of Amsterdam apartments vacant allegedly to create a housing shortage to jack up rates.

Earlier this year, BlackRock was accused of inconsistency for supporting a shareholder protest against Procter & Gamble’s sourcing of palm oil from an Indonesian company in which BlackRock itself holds a significant stake. The asset management group, which has made ambitious commitments to environmental, social and governance standards, joined an investor rebellion at P&G over the entity’s wood pulp and palm oil supply chain, which extends into Indonesia.

Reportedly, P&G has since asked its Singapore-based supplier Wilmar International to investigate Astra Agro Lestari, a palm oil subsidiary of Indonesian conglomerate Astra International that activists have accused of seizing land from local farmers, among other poor environmental standards.

Rights groups and sustainable investment advocates have now turned their attention to BlackRock, which is a significant shareholder in Astra International. According to Bloomberg data, the US fund group is Astra International’s third-largest investor, with a holding worth almost $350m. It also has a small direct holding in Astra Agro Lestari.

BlackRock Inc. is among the world’s biggest investment management companies with nearly $8.7 trillion in assets under management as of December 31, last year.

Last year, Macquarie Group Ltd. and Commonwealth Bank of Australia faced scrutiny for possible money laundering lapses after overseas banks reported up to US$167 million of potential dirty money transactions flowing through the two Australian banks. The development was first reported by The Sydney Morning Herald, citing data released by the International Consortium of Investigative Journalism (ICIJ). The ICIJ released leaked documents that showed that Commonwealth Bank of Australia was flagged by multiple global banks over suspicious transactions, including some in crime hotspots in far eastern Russia and in Kazakhstan.

The Macquarie Group accounted for 72 percent of the total reported transactions, or US$123 million, while Commonwealth Bank of Australia was flagged for a total of US$44 million of such transactions. Australia and New Zealand Banking Group Ltd. (ANZ) was flagged for US$4.7 million of such transactions. A Macquarie spokesperson, however, said it is unlawful to comment on the specifics of suspicious activity reporting.

Going by published reports, the Macquarie group is comparatively a more dependable asset management agency than most other big names. Recently, the group's asset management arm had agreed to buy a majority stake in Britain’s Southern Water for more than one billion pounds ($1.39 billion), pledging to transform the British utility that has faced criticism and fines for polluting local rivers.

Can the Indian government trust such global agencies with management of critical national assets? Is the government capable of taking on such global asset managers in case of post-contract legal disputes in international courts of judicature for settlement in its favour?

It is natural that the global asset managers would like to extract as much profit as possible from the Indian public assets under their management. They won’t be here to do a charity. The rates of return from such assets are bound to go up while the investment in maintenance and improvement of facility may suffer. That is the fear. The legal protection aspect is a big issue.

The money managers of the current government seem to lack maturity. For instance, the sudden decision of the government on November 8, 2016, demonetising all Rs.500 and Rs.1,000 banknotes of the Mahatma Gandhi Series — freezing some 86 percent of Indian currency in value — failed to achieve the twin objectives of removal of black money from the system and heavily cut down cash transactions.

Going by the RBI reports, the cash currency circulating in Indian economy reached the record high of Rs 26.19 lakh crore on 23 October 2020 from Rs 17.97 lakh crore in November 2016 — an increase of 45.7 percent. The latest CBI and ED investigations in a number of cases suggest that the demonetisation has had little impact on the growth of black money and hawala transactions.

Under the circumstances, the government would do well to rethink on national asset monetisation involving powerful global asset managers.

(IPA Service)

Views are personal