|
|
BALCO - THE DISINVESTMENT STORY
BALCO-A Profile
STAGE
I: THE TUG OF WAR
STAGE II: THE CONTROVERSY DEEPENS
continued
from Page 3
STAGE III: THE DEBATE
Meanwhile, the Opposition demanded a Joint Parliamentary
Committee (JPC) probe into the Balco deal. The GoI rejected the demand for a JPC
probe leading to a walkout by the entire Opposition in the Rajya Sabha. Shourie
tried to convince the Opposition that the GoI had got a good price on the
transaction, and that the deal was above board and urged them not to create
hurdles in its path. Most members, however, alleged that the deal had been
manipulated at some level in the government. Towards the end of the seven-hour
debate, the Opposition staged a walkout after its leader Manmohan Singh
(Congress I) asked Shourie to reconsider the demand for setting up a small JPC
to go into the Balco deal to ensure its transparency and vindicate GoI.
|
|
However, Shourie dismissed the need for a JPC probe and
emphasized that an assessment by the Comptroller and Auditor General (CAG) would
be sufficient. The CAG's findings could be taken up for scrutiny and discussion
by Parliament, he said. However, the Opposition remained adamant and charged the
GoI of selling the Balco shares 'for a song.' The Opposition was of the view
that various calculations had put the worth of the company at over Rs 2,900
crore as against the disinvestment price of Rs 551 crore agreed to by the GoI.
Terming Balco's valuation as faulty, the Opposition said, Balco's captive power
plant alone could fetch Rs 1050 crore and demanded that the cost detail analysis
be laid in the House. They questioned the manner of evaluation undertaken by the
GoI.
|
|
Defending the valuation method, Shourie said, "The
appropriate method for valuation of a going concern was the method of discounted
cash flow. After it was followed, the government, for abundant caution, had also
asked the advisors to assess the value of the company by two other universally
recognised methods. For 51% of the equity, the advisors placed the valuation
through discounted cash flow method at Rs 332-507 crore; through the comparable
valuation method at Rs 299-464 crore and through the balance sheet method at Rs
305-348 crore."
Shourie further said, "Only the government approved valuers did the job. A
screening committee of Balco selected PV Rao and Co through competitive bidding
for valuing the land and buildings, and plant and machinery. The mines were
valued by experts from the Indian Bureau of Mines. The value of the assets was
placed around Rs 1,072 crore, 51% cent of which would be around Rs 547 crore."
On March 1 2001, voting on the controversial Balco deal took place in the Lok
Sabha. The Parliament approved the controversial Balco deal, with the
opposition-sponsored motion being rejected in the Lok Sabha. The motion was
defeated by 239 to 119 votes. On March 2, 2001, a day after surviving the
Opposition-sponsored motion in Parliament, the GoI moved swiftly to sign the
shareholders agreement for the sale of 51% stake to SIL. SIL handed over a
cheque for Rs 551.50 crore to the GoI for acquiring management control of Balco.
On March 3, 2001, the management control of Balco was transferred to SIL.
The shareholders agreement provided for a lock-in period of three years. SIL
wouldn't sell any part of its 51% stake for a period of three years after
acquiring management control of the company. However, the Government was free to
sell its remaining 49% stake any time, on which SIL would have the first right
of refusal. The agreement also contained clauses prohibiting asset stripping by
SIL within a specified time-frame. SIL also agreed not to retrench Balco's
7,000-strong workforce for a period of one year. For any retrenchment beyond a
year, the workers would be offered a voluntary retirement scheme (VRS) package
equivalent to one approved by the Government for PSUs.
STAGE IV: POST SELL OUT DRAMA
ALL'S (NOT) WELL THAT ENDS WELL
2010, ICMR (IBS Center for Management Research).All rights reserved. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted
in any form or by any means - electronic or mechanical, without permission.
To order copies, call +91- 8417- 236667 or write to ICMR,
Survey No. 156/157, Dontanapalli Village, Shankerpalli Mandal,
Ranga Reddy District,
Hyderabad-501504.
Andhra Pradesh, INDIA.
Mob: +91- 9640901313, Ph: +91- 8417- 236667,
Fax: +91- 8417- 236668
E-mail: info@icmrindia.org
Website: www.icmrindia.org
This case study is intended to be used as a basis for class discussion rather
than to illustrate either effective or ineffective handling of a management
situation. This case was compiled from published sources.
|