Corporate Restructuring

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<p>This pageintentionally leftblankCopyright 2007, New Age International (P) Ltd., PublishersPublished by New Age International (P) Ltd., PublishersAll rights reserved.No part of this ebook may be reproduced in any form, by photostat, microfilm,xerography, or any other means, or incorporated into any information retrievalsystem, electronic or mechanical, without the written permission of the publisher.All inquiries should be emailed to rights@newagepublishers.comPUBLISHING FOR ONE WORLDNEW AGE INTERNATIONAL (P) LIMITED, PUBLISHERS4835/24, Ansari Road, Daryaganj, New Delhi - 110002Visit us at www.newagepublishers.comISBN (13) : 978-81-224-2543-7Public sector undertakings in India were viewed as a mechanism for structuraltransformation of the economy and for growth with equity and social justice.They were established to attain the commanding heights of the economy ofthecountryandachieverapidgrowthofindustrializationandeconomicdevelopment. There has been phenomenal and tremendous growth of PSEs inIndia. But some of these public sector units later became white elephant andstartedincurringlosses.Severalofthembecamechronicallysickindustries.This alarmed the entire corporate to gear up to the expectation of the market.Open competition erupted and threat to the traditional business houses waswitnessed.Many business houses collapsed and a lot of engineering activities cameinto being for the survival of business. Corporate restructuring is one such area,which has emerged recently. It is an umbrella term that includes mergers andconsolidations,disinvestmentandliquidations,andvarioustypesofbattlesfor corporate restructuring can and has been used to mean almost any changeinoperations,capitalstructureandownershipthatisnotpartofthefirmsordinary course of business.Disinvestment is not a vehicle to bridge budgetary gaps but is an integralpartofcorporaterestructuringwhichitselfshouldbeviewedaspartofre-equippingIndianindustrytobecomegloballycompetitive.Thisbookinitspresent form is an icy shower in the hinterland of disinvestment and is intendedto provide a comprehensive text to cover this much talked but less understoodissue in the Indian perspective and is essential reading for anyone who wantsto know the nuts and bolts of disinvestment, its present status and interestedin knowing how it is gaining worldwide acceptance.The book is divided into seven chapters. Chapter 1 explains what CorporateRestructuring is all about and sets the tone for disinvestment. Chapter 2 dealswith public sectors objectives, background of public ownership, evolution ofpublicsectorpolicyinIndiaandtheneedfordisinvestingPSEs.Chapter3analyses in detail the disinvestment drive in India, the concept of disinvestment,year-wise disinvestment of PSEs and contribution of disinvestment proceedsinmeetingfiscaldeficit.Chapter4isallaboutprivatizationframework.PREF REF REF REF REFA AA AACE CE CE CE CEChapter 5 deals with theoretical perspective on the effects of ownership andcompetition on efficiency of public sector enterprises and based on the empiricalevidence, measures the performance of these PSEs. Changes and Impacts onIndustry Structure and Operations find place in chapter 6. Finally the chapter7 besides suggestions and recommendations, discusses the various inferencesdrawn from previous chapters and presents the summary and conclusion part.Thoughprimarilytargetedforpost-graduatestudents,CorporateRestructuringThroughDisinvestmentshouldbeusefultothepracticingmanagers,researchersandallseriousstudentsofacriticaleconomicreformprocess.I will appreciate and greatfully acknowledge the suggestions and commentsfrom the readers and fellow teachers of the subject.DR. HARJIT SINGHPreface (vi)Practice makes a man perfect is a legendary aphorism and when a persongetsguidanceofexpertsoftherespectivefield,theknowledgegainedisinvaluable. In the light of the foregoing, I offer my deep sense of gratitude toDr.S.D.Vashishtha,ProfessorandHead,DepartmentofCommerce,M.D.University, Rohtak who has been a continuous source of inspiration in carryingout this book.This trifle work of mine would have been a zygote, if not have achievedthesupport,cooperationandblessingsoffewpeople,withoutwhom,Iwould not have been able to materialize my book. Therefore, I would liketo put my heartfelt thank to Dr. Jagjit Singh, Senior Professor and ExecutivePresident, Institute of Marketing and Management (IMM), Delhi, for theirguidance, support and continuous encouragement while writing this book.I would like to acknowledge the scholastic hand provided by Dr. SanjayJain of Delhi School of Economics, University of Delhi, Prof. Vinay Dutta, ForeSchoolofManagement,NewDelhi,Prof.R.Vinayak,Prof.S.S.Chahal,andProf. M.S. Malik from M.D. University, Rohtak andProf. K.K. Uppal of PunjabiUniversity, Chandigarh.Iamalsogratefultoexecutivesofvariouspublicenterprises,librariansand staff members of various libraries visited by me during the preparation ofbook,forextendingtheirhelpinghandandprovidingrelevantinformationand data, whenever required by me.It would not be fair on my part if I forget to express my thanks to all thestaffmembersofDepartmentofCommerce,M.D.University,RohtakandInstitute of Marketing and Management, New Delhi for their worthy guidanceand support.Genetics and inheritance matter as much as anything so vital so important.I respect my inheritance; I am grateful to my beloved parents and my brother-in-lawMr.SabbySachdev,Ph.D.candidate,Virginia,USAwhodeserve,nothingshortofhonour.Ithankthemfortheirlove,affectionandsincerehand for assisting me and creating an ambience where I could put my bestinto this book.ACKNOWLEDGEMENT CKNOWLEDGEMENT CKNOWLEDGEMENT CKNOWLEDGEMENT CKNOWLEDGEMENTI am also indebted to my wife Prabhjot Kaur, Ministry of Defence and myfather-in-law Mr. K.S. Sachdeva, Ministry of Home Affairs for having providedenormous support and encouragement inspite of bearing the brunt of elongatedstudy hours which encroached upon the time normally meant for meeting myfamily obligations.Friends are natures gifts, and Im gifted with lot of friends who have goneto extremes to support my actions, my deeds and helped me in various waysfor successful completion of this book. My indebtness to other works has beenduly acknowledged at the relevant places.I would also like to thank people at infinity for helping me in any way theycould.DR. HARJIT SINGHAcknowledgement (viii)ADR American Depository ReceiptASI Annual Survey of IndustriesASSOCHAM TheAssociatedChambersofCommerce&amp;IndustryofIndia.AY Andrew Yule and Company LimitedBALCO Bharat Aluminium Company LimitedBEL Bharat Electronics LimitedBEML Bharat Earth Movers LimitedBHEL Bharat Heavy Electricals LimitedBIFR Board for Industrial and Financial ReconstructionBRPL Bongaigaon Refinery and Petrochemicals LimitedBSE Bombay Stock ExchangeCAPM Capital Asset Pricing ModelC &amp; AG Comptroller and Auditor General of IndiaCCD Cabinet Committee on DisinvestmentCEL Central Electronics LimitedCII Confederation of Indian IndustryCIS Commonwealth of Independent StatesCMD Chairman and Managing DirectorCMIE Centre for Monitoring the Indian EconomyCONCOR Container Corporation of India LimitedCPI Consumer Price IndexCRL Cochin Refineries LimitedDCF Discounted Cash FlowDCI Dredging Corporation of India LimitedDMCCL Dharamsi Morarji Chemical Company LimitedDOT Department of TelecommunicationsDPE Department of Public EnterprisesEIL Engineers India LimitedEPIL Engineering Projects (India) LimitedESOP Employees Stock OptionET &amp; T ElectronicsTradeandTechnologyDevelopmentCorporation LimitedLIST IST IST IST IST OF OF OF OF OF ABBREVIA BBREVIA BBREVIA BBREVIA BBREVIATIONS TIONS TIONS TIONS TIONSFACT Fertilizers and Chemicals (Travancore) LimitedFDI Foreign Direct InvestmentsFERA Foreign Exchange Regulation ActFICCI Federation of Indian Chambers of Commerce &amp; IndustryFIIs Foreign Institutional InvestorsFY Financial YearGAAP Generally Accepted Accounting PrinciplesGATT General Agreement on Trade &amp; TariffGAIL Gas Authority of India LimitedGDP Gross Domestic ProductGDR Global Depository ReceiptGSL Goa Shipyard LimitedHAL Hindustan Aeronautics LimitedHCIL Hotel Corporation of India LimitedHCL Hindustan Cables LimitedHIL Hindustan Insecticides LimitedHINDALCO Hindustan Aluminium CompanyHLL Hindustan Latex LimitedHMT Hindustan Machine Tools LimitedHOCL Hindustan Organic Chemicals LimitedHPCL Hindustan Petroleum Corporation LimitedHPF HindustanPhotoFilmsManufacturingCorporationLimitedHPL Hindustan Prefab LimitedHSCL Hindustan Steel Works Construction LimitedHTL Hindustan Teleprinters LimitedHVOC Hindustan Vegetable Oils Corporation LimitedHZL Hindustan Zinc LimitedICRA Investment Information &amp; Credit Rating AgencyIDBI Industrial Development Bank of IndiaIDPL Indian Drugs &amp; Pharmaceuticals Ltd.IFFCO Indian Farmers Fertilizers CooperativeIISCO Indian Iron and Steel Company LimitedIMF International Monetary FundIMG Inter-Ministerial GroupIOC Indian Oil Corporation LimitedIPCL Indian Petrochemicals Corporation LimitedIPO Initial Public OfferingIRCON Indian Railway Construction Company LimitedITDC India Tourism Development Corporation LimitedKIOCL Kudremukh Iron Ore Company LimitedList of Abbreviations (x)L &amp; T Larsen &amp; ToubroLMBO Leveraged Management Bye-OutLPG Liquified Petroleum GasLSE London Stock ExchangeMBO Management Bye-OutMECL Mineral Exploration Corporation LimitedMECON Metallurgical &amp; Engineering Consultants (India) LimitedMFIL Modern Food Industries (India) LimitedMFL Madras Fertilizers LimitedMNCs Multinational CompaniesMOIL Manganese Ore (India) LimitedMoU Memorandum of UnderstandingMPP Mass Privatization ProgrammeMRL Madras Refineries LimitedMRTP Monopoly and Restrictive Trade PracticesMTNL Mahanagar Telephone Nigam LimitedNALCO National Aluminium Company LimitedNAV Net Asset ValueNCAER National Council of Applied Economic ResearchNFL National Fertilizers LimitedNHPC National Hydro-electric Power Corporation LimitedNI Net IncomeNIF National Investment FundsNIP New Industrial PolicyNLC Neyveli Lignite Corporation LimitedNMDC National Mineral Development Corporation LimitedNRI Non Resident IndianNSE National Stock ExchangeNSSO National Sample Survey OrganisationNTPC National Thermal Power Corporation LimitedNTT Nippon Telegraph and TelephoneONGC Oil and Natural Gas Corporation LimitedOPEC Organisation of Petroleum Exporting CountriesPAT Profit After TaxPBDIT Profit Before Depreciation, Interest and TaxPEC Projects and Equipments Corporation LimitedPECV Profit Earning Capacity ValuePER Price Earning RatioPES Public Enterprises SurveyPHL Pawan Hans Helicopters LimitedPIB Press Information BureauPIM Preliminary Information MemorandumList of Abbreviations (xi)POWER Power Grid Corporation of India LimitedPPCL Pyrites, Phosphates and Chemicals LimitedPPE Power Plant EquipmentPPL Paradeep Phosphates LimitedPSEs Public Sector EnterprisesR &amp; D Research and DevelopmentRCFL Rashtriya Chemicals and Fertilizers LimitedRICL Rehabilitation Industries Corporation LimitedRITES Rail India Technical and Economic Services LimitedROA Return on AssetsROCE Return on Capital EmployedROE Return on EquityROS Return on SalesRPS Retention Pricing SchemeSAIL Steel Authority of India LimitedSCI Shipping Corporation of India LimitedSDF Steel Development FundSEBI Securities and Exchange Board of IndiaSIL Sponge Iron India LimitedSLPE State Level Public EnterprisesSOEs State Owned EnterprisesSTC State Trading Corporation of India LimitedSWOT Strengths, Weaknesses, Opportunities and ThreatsTFP Total Factor ProductivityTISCO Tata Iron and Steel CompanyUK United KingdomUSA United States of AmericaUSD US DollarsUTI Unit Trust of IndiaVRS Voluntary Retirement SchemeVSNL Videsh Sanchar Nigam LimitedWACC Weighted Average Cost of CapitalWTO World Trade OrganisationList of Abbreviations (xii)LIST IST IST IST IST OF OF OF OF OF TABLES ABLES ABLES ABLES ABLESTable PageNo. Title of the Table No.. . . 242.1 Gross fiscal deficit as a percentage of GDP2.2 SelectedfiscalindicatorsoftheCentralGovernment(as a percentage of GDP)2.3 Percentage share of plan and non-plan expenditure intotal expenditure2.4 Investment and savings as percentage of GDP3.1 PSEs disinvested in 1991-923.2 Amount realised from disinvestment in 1992-933.3 PSEs disinvested in March/April 19943.4 PSEs disinvested in October 19943.5 PSEs disinvested in January 19953.6 PSEs disinvested in 1996-973.7 PSEs disinvested in 1997-983.8 PSEs disinvested in 1998-993.9 PSEs disinvested in 1999-20003.10 PSEs disinvested in 2000-013.11 PSEs disinvested in 2001-023.12 PSEs disinvested in 2002-033.13 Details of disinvestment proceeds during 2002-033.14 PSEs disinvested in 2003-043.15 PSEs disinvested in 2004-053.16 PSEs disinvested in 2005-063.17 Strategic sale of PSEs year 2000 onwards3.18 Disinvestment in states3.19 Status of Investment in SLPSEs (as on 31-3-2003)3.20 Enterprises under study by disinvestment commission3.21 Contributionsofdisinvestmentproceedsinmeetingfiscaldeficitfromfinancialyear1991-92to1997-98(Amount in crore). . . 25. . . 26. . . 31. . . 32. . . 33. . . 34. . . 34. . . 35. . . 36. . . 37. . . 38. . . 40. . . 41. . . 42. . . 42. . . 43. . . 44. . . 44. . . 44. . . 46. . . 47. . . 48. . . 52. . . 24List of Tables (xiv)3.22 Contributionsofdisinvestmentproceedsinmeetingfiscaldeficitfromfinancialyear1998-99to2003-04(Amount in crore)4.1 Framework for decision-making5.1 Realreturntoinvestmentincaseofbothpublicandprivate sectors5.2 Comparison of profitability: Public and private sectors5.3 Acomparisonbetweenpublicandprivatesectorsinterms of some profit ratios5.4 Employment in organized public and private sectors5.5 Estimatesofemploymentinorganizedpublicandprivate sectors5.6 Resultsonrelativeefficiencyofpublicandprivatesector enterprises6.1 Details of enterprisesPercentagewise6.2 Details of enterprisesGroupwise6.3 ComparisonofperformancechangeinprofitabilityfollowingdisinvestmentofPSEsoperatinginbothcompetitive and monopoly environment6.4 Comparisonofperformancechangeinoperatingefficiency following disinvestmentof PSEs operatingin both competitive and monopoly environment6.5 Extent of disinvestment and changes in profitability6.6 Extent of disinvestment and operating efficiency6.7 Summary of results for financial efficiency in the fullsample of 47 disinvested PSEs6.8 Profitability ratios in corporate sector (Manufacturingcompanies)6.9 Summaryofresultsforoperationalefficiencyinthefull sample of 47disinvested PSEs. . . 62. . . 76. . . 74. . . 77. . . 78. . . 79. . . 79. . . 85. . . 85. . . 86. . . 87. . . 89. . . 92. . . 94. . . 93. . . 95. . . 52LIST IST IST IST IST OF OF OF OF OF GRAPHS RAPHS RAPHS RAPHS RAPHSGraph PageNo. Title of the Graph No.2.1 Selected fiscal indicators of the Central Government2.2 Percentage share of plan and non-plan expenditure intotal expenditure2.3 Investment and savings as percentages of GDP3.1 ReceiptandexpenditureoftheCentralGovernmentfrom 1991-92 to 1997-983.2 ReceiptandexpenditureoftheCentralGovernmentfrom 1998-99 to 2003-04. . . 25. . . 25. ....</p>