Description
the meaning of restructuring, different types of restructuring. It gives examples of restructuring at orissa state electricity board, SAIL, ECIL.
? Definition ? Characteristics ? Restructuring of CPSEs ? Types ? Examples ? Key Terms ? Disinvestment ? Objectives of Disinvestment ? Recommendations of the Disinvestment
Commission ? Policy of the Government
? reorganizing ? profitability ? cost-saving
activity ? reviving a sagging business ? improve competitiveness
? Changes
in corporate management ? Sale of underutilized assets ? Outsourcing of operations to a more efficient party ? Moving of operations to lower- cost locations ? Reorganization of functions ? Renegotiation of labor contracts ? Refinancing of corporate debt ? A major public relations campaign
? Revival
of PSEs through BIFR ? Financial restructuring ? Joint Ventures ? Fresh funds ? Organizational & Business restructuring ? Manpower rationalization ? Improved market strategies ? Cost control measures
? ? ?
Financial Restructuring Business Restructuring Manpower Restructuring
?
? ? ? ? ? ? ?
Equity Loan Revival packages Write off past loans Infusion of fresh capital Waiver of loan/interest Conversion of loan into equity Moratorium on payment of loan/interest
? ? ? ? ? ?
Change of management Hiving off viable units from CPSEs Closure of unviable units Formation of joint ventures Change in product mix Improving market strategy
? ?
Expansions – mergers, consolidations, acquisitions & other activities which result in an enlargement of a firm. Merger – a merger involves a combination of two firms • Horizontal merger involves two firms in similar businesses. • Vertical merger involves two firms involved in different stages of production of the same end product or related end product. • Conglomerate mergers involve two firms in unrelated business activities. Contd….
? A Consolidation involves the creation of an altogether new firm owning the assets of both of the first two firms and neither of the first two survive. ? In a Joint Venture two separate firms pool some of their resources and this does not ordinarily lead to the dissolution of either firm. ? An Acquisition is an attempt by one firm called the acquiring firm to gain a majority interest in another firm called the target firm
? ? ?
?
? ? ?
Growth Increased market share Acquisition of a competence or a capability (e.g. ICICI merged with ITC Classic to obtain its retail network and depositors? base) Entry into new markets/product segments (e.g. Ranbaxy wanted to enter into the therapeutic and dermatology sectors so it took over Crosslands). Entry into the Indian markets Access to funds (e.g. TDPL merged with Sun Pharma since it did not have the funds to launch new products) Tax benefits
?
Downsizing
?
Voluntary Retirement Scheme
?
Golden Hand Shake
? Orissa
State Electricity Board (renamed Grid Corporation of Orissa Ltd. i.e.GRIDCO) Problems ? adverse capital structure ? uneconomic tariff ? weak billing & collection system ? overstaffing ? inadequately skilled manpower
Solution ? Orissa Electricity Reforms Act in Jan 1996 ? Restructuring: - privatization of generation and distribution - competitive bidding for new generation - transparent and independent regulating agency - tariff reforms
Orissa Lift Irrigation Corporation ? Abolished 11 divisions out of its total 29 divisions as a measure to reduce its establishment expenditure ? Introduced the VR scheme to get rid of its surplus staff
?
Problems: ? SAIL does not have its own captive coal mines. Coking coal constitutes nearly 55 to 60% of total material cost. SAIL is obliged to buy about 53% of coking coal from CIL. ? With a large workforce of about 1.57 lakh, SAIL employs four to five times more than it needs. SAIL increased the retirement age of its employees from 58 years to 60 years in 1998. SAIL does not have retrenchment culture.
Contd…
? IISCO,
a private sick company, was transferred to SAIL in 1979 as its subsidiary. SAIL is further constrained by the amalgamation of loss-making Visvesvarya Iron & Steel Ltd. From 1998. ? Being a PSE, SAIL bears a lot of social costs.
? SAIL
appointed M/s McKinsey & Company in 1997 to formulate a competitiveness pan. ? Recommendations include assets and organizational restructuring, operational cost control, manpower reduction, capital expenditure control, marketing initiatives, purchase policy review, etc. ? SAIL concentrated on its core area i.e. steel making. Non-core area, i.e. captive power generation will be put in a separate subsidiary power company.
Contd…
? SAIL
brought innovation in marketing strategy by shifting focus from distribution to marketing. ? Constraints in bringing these changes were attitudinal. ? The financial restructuring wherein SDF (Steel Development Fund) loan has been written off. ? After making losses since 1998-99, SAIL made a profit in the first quarters of 2003 mainly due to higher domestic consumption of steel and adoption of aggressive marketing strategy.
Problems: ? Falling profit margins in the increasingly competitive market. ? Not able to generate an effective marketing strategy. Solution: ? „Mukha-Mukhi? scheme ? Heads of Departments granted complete financial autonomy.
Contd….
? Technology
Development Council formed in association with BARC ? Entered into an MoU with NPCIL. ? Manpower restructuring was done by rightsizing the organization?s staff.
?
?
?
Privatization: any measure resulting in transfer of ownership and/or control over assets or activities from the public to the private sector. Divestiture : Transfer of property rights from state to a private party whether against payment or not; it is generally accompanied by a change in control mechanism. Disinvestment : a process inverse to the act of investing; or action for sale of an investment leading to the end or winding up of an investment.
Contd…
.
? Divestment
: transfer of property rights from state to a private party. The act of divestment is known as divestiture. ? Rolling Privatization : promotes enterprises in public sector with a view to handing them over to private sector. ? Greenfield Privatization : permits private enterprise into areas hitherto reserved for public sector. ? Cold Privatization: public enterprises required to compete in the market as if they are private enterprises
? The
term privatization is broader than divestiture. ? The privatization process began in UK in the 1980s. ? Contracting out delivery of public service to the private sector and financing of the service by the government.
Contd…
? De-regulating
statutory monopolies and removing licensing barriers. ? Selling nationalized companies by offering stock to employees and customers. ? The Indian Government advocated privatizing non-strategic units through gradual disinvestment or strategic sale. ? The first privatization was of Modern Foods in 1999-2000. ? In 2000-01 a major privatization was through strategic sale of Bharat Aluminium Company Ltd. (BALCO) .
? Lagan
Jute Machinery Company Limited (LJMC)
? Started
making losses from 1996-97; turnover was on a decline. ? Approved for privatization in 1997 through sale of 74% stake to a strategic partner. ? Strategic partner retained the same senior management team; no retrenchment of workers. ? Introduced new products, revamped the marketing function.
? Focus
on core businesses for the divesting firm (e.g. sale of TOMCO by the Tatas) ? Declining profitability of businesses in which the firm is operating ? Getting rid of unprofitable business (e.g. sale of ITC Classic by ITC) ? Need for funds for other activities
? Disinvestment
of CPSEs began in 1991-
92. ? To raise resources, encourage wider public participation, and promote greater accountability. ? Up to 20% of the Government equity in selected PSEs was to be offered to Mutual Funds, Financial/Investment institutions, workers and the general public
? The
Ministry of Industry (Department of PEs) constituted a Public Sector Disinvestment Commission in 1996. ? The commission was wound up in 2004. ? The Department of Disinvestment became one of the departments under the Ministry of Finance.
? Redeploying
resources locked up in nonstrategic PSEs in areas that are much higher on the social welfare priority. ? Stewing further flow of resources for the nonstrategic activities. ? Ensuring that the taxpayers? money is not subjected to the volatility of the market. ? Converting PSEs into strong private commercial enterprises. ? Reducing public debt and pressure on government resources. ? Providing vibrant, large and deeper capital market with investment alternatives to investors as well as assuring them easy exit options.
? The
proceeds from the disinvestment may be placed separately in a Disinvestment Fund. ? Formation of a Standing Empowered Group. ? Government should frame a clear-cut policy statement on the terms of VRS on a stable and long-term basis.
Contd…
? The
sale of shares of PSEs like GAIL (49%), ITDC (74%), Modern Food (100%) (1st Report). ? Phasing out of administered price mechanism for all petroleum products within two years (2nd Report, April, 1997). ? Offloading PSEs equity (3rd Report, June, 1997). ? About 10-15% of the PSU employees may take VRS which can be structured like a pension cum insurance scheme
S.No.
1. 2. 3.
Name of CPSEs
BHEL BHEL BPCL
Year
1992-93 1994-95 1992-93
Amount (Rs. Crore)
8.21 301.34 331.18
4.
5. 6. 7.
GAIL
GAIL GAIL GAIL
1994-95
1998-99 1999-00 2003-04
194.12
671.86 945.00 1627.36
8.
9. 10. 11.
IOC
IOC IOC SAIL
1994-95
1998-99 1999-00 1992-93
1033.65
1209.00 162.79 700.1
12.
13. 14.
SAIL
SAIL NTPC
1994-95
1995-96 2004-05
22.66
13.30 2984.07
Source :http://www.divest.nic.in/performance.htm
S.No.
Name of the CPSEs
Percentage of equity disinvested
Name of the buyer Indian Oil Corporation Limited Indian Oil Corporation Limited
Proceeds realised (Rs. In crore) 148.80
1.
BRPL (Bongaigaon 74.46 Refineries & Petrochemicals Ltd.) Madras Refineries Limited (Chennai Petroleum Corporation Limited) Kochi-Refineries Limited (KRL) 51.81
2.
509.33
3.
55.04
Bharat Petroleum Corporation Limited
659.10
Source :http://www.divest.nic.in/performance.htm
Year
Name of the CPSE disinvested
Modern Food Industries (India) Ltd. Bharat Aluminium Company Ltd. LJMC Ltd.
Type of disinvestm -ent
Strategic Sale
Name of buyer
%age of equity sold
74
Residual Amount equity realized of govt. (Rs. Crore)
26% 105.45
1999-00
Hindustan Lever Limited
2000-01
Strategic Sale
Sterlite Industries (India) Ltd. Murlidhar Ratanlal Exports Ltd.
51
49%
551.50
2000-01
Strategic Sale
74
26%
2.53
2002-03
Hindustan Strategic Zinc Limited Sale
Sterlite Opportunities & Ventures Limited
26
49.92%
445
Source :http://www.divest.nic.in/performance.htm
? Devolution
of full managerial and commercial autonomy to successful, profit-making companies. ? Profit-making companies will not be privatized. ? All privatizations will be considered on a transparent and consultative case-by-case basis. ? Retain existing “Navratna” companies in the public sector.
Contd….
? Raise
resources from the capital market. ? Modernize and restructure sick public sector companies. ? The chronically loss making companies will either be sold off or closed. ? Induct private industry to turn around companies that have potential for revival. ? Encouraging collaboration between PSUs and foreign companies. e.g. BHEL and UK-based Sheffield Forge-masters and Japan?s Kobe Steel.
Contd….
? Encouraging
collaboration among PSUs. e.g.NTPC and NPCIL. ? Disinvestment should be done after restructuring and image building of the enterprise. ? Board for Reconstruction of Public Sector Enterprises.
1.Cherunilam, F. (2008) Business Environment Himalaya Publishing House, Mumbai. 2.Naib, S. (2004) Disinvestment in India – Policies, Procedures, Practices, Sage Publications, New Delhi. 3.Dhameja, N & Sastry, K.S. (1998) Privatization – Theory and Practice, Wheeler Publishing, New Delhi. 4.„NPCIL & NTPC sign agreement?, The Hindu (Online edition), 15th February, 2009
5.„BHEL in talks with Sheffield, Kobe for nuclear forgings facility?, Business Line, 20th November, 2008. 6.„Restructuring strategy pays dividends?, The Hindu, 30th October, 2002. 7.www.divest.nic.in, accessed on 25th February, 2009. 8.www.afferguson.com/bulletin/corpfin.htm, accessed on 15th February, 2009.
Thank you!!
doc_359030240.pptx
the meaning of restructuring, different types of restructuring. It gives examples of restructuring at orissa state electricity board, SAIL, ECIL.
? Definition ? Characteristics ? Restructuring of CPSEs ? Types ? Examples ? Key Terms ? Disinvestment ? Objectives of Disinvestment ? Recommendations of the Disinvestment
Commission ? Policy of the Government
? reorganizing ? profitability ? cost-saving
activity ? reviving a sagging business ? improve competitiveness
? Changes
in corporate management ? Sale of underutilized assets ? Outsourcing of operations to a more efficient party ? Moving of operations to lower- cost locations ? Reorganization of functions ? Renegotiation of labor contracts ? Refinancing of corporate debt ? A major public relations campaign
? Revival
of PSEs through BIFR ? Financial restructuring ? Joint Ventures ? Fresh funds ? Organizational & Business restructuring ? Manpower rationalization ? Improved market strategies ? Cost control measures
? ? ?
Financial Restructuring Business Restructuring Manpower Restructuring
?
? ? ? ? ? ? ?
Equity Loan Revival packages Write off past loans Infusion of fresh capital Waiver of loan/interest Conversion of loan into equity Moratorium on payment of loan/interest
? ? ? ? ? ?
Change of management Hiving off viable units from CPSEs Closure of unviable units Formation of joint ventures Change in product mix Improving market strategy
? ?
Expansions – mergers, consolidations, acquisitions & other activities which result in an enlargement of a firm. Merger – a merger involves a combination of two firms • Horizontal merger involves two firms in similar businesses. • Vertical merger involves two firms involved in different stages of production of the same end product or related end product. • Conglomerate mergers involve two firms in unrelated business activities. Contd….
? A Consolidation involves the creation of an altogether new firm owning the assets of both of the first two firms and neither of the first two survive. ? In a Joint Venture two separate firms pool some of their resources and this does not ordinarily lead to the dissolution of either firm. ? An Acquisition is an attempt by one firm called the acquiring firm to gain a majority interest in another firm called the target firm
? ? ?
?
? ? ?
Growth Increased market share Acquisition of a competence or a capability (e.g. ICICI merged with ITC Classic to obtain its retail network and depositors? base) Entry into new markets/product segments (e.g. Ranbaxy wanted to enter into the therapeutic and dermatology sectors so it took over Crosslands). Entry into the Indian markets Access to funds (e.g. TDPL merged with Sun Pharma since it did not have the funds to launch new products) Tax benefits
?
Downsizing
?
Voluntary Retirement Scheme
?
Golden Hand Shake
? Orissa
State Electricity Board (renamed Grid Corporation of Orissa Ltd. i.e.GRIDCO) Problems ? adverse capital structure ? uneconomic tariff ? weak billing & collection system ? overstaffing ? inadequately skilled manpower
Solution ? Orissa Electricity Reforms Act in Jan 1996 ? Restructuring: - privatization of generation and distribution - competitive bidding for new generation - transparent and independent regulating agency - tariff reforms
Orissa Lift Irrigation Corporation ? Abolished 11 divisions out of its total 29 divisions as a measure to reduce its establishment expenditure ? Introduced the VR scheme to get rid of its surplus staff
?
Problems: ? SAIL does not have its own captive coal mines. Coking coal constitutes nearly 55 to 60% of total material cost. SAIL is obliged to buy about 53% of coking coal from CIL. ? With a large workforce of about 1.57 lakh, SAIL employs four to five times more than it needs. SAIL increased the retirement age of its employees from 58 years to 60 years in 1998. SAIL does not have retrenchment culture.
Contd…
? IISCO,
a private sick company, was transferred to SAIL in 1979 as its subsidiary. SAIL is further constrained by the amalgamation of loss-making Visvesvarya Iron & Steel Ltd. From 1998. ? Being a PSE, SAIL bears a lot of social costs.
? SAIL
appointed M/s McKinsey & Company in 1997 to formulate a competitiveness pan. ? Recommendations include assets and organizational restructuring, operational cost control, manpower reduction, capital expenditure control, marketing initiatives, purchase policy review, etc. ? SAIL concentrated on its core area i.e. steel making. Non-core area, i.e. captive power generation will be put in a separate subsidiary power company.
Contd…
? SAIL
brought innovation in marketing strategy by shifting focus from distribution to marketing. ? Constraints in bringing these changes were attitudinal. ? The financial restructuring wherein SDF (Steel Development Fund) loan has been written off. ? After making losses since 1998-99, SAIL made a profit in the first quarters of 2003 mainly due to higher domestic consumption of steel and adoption of aggressive marketing strategy.
Problems: ? Falling profit margins in the increasingly competitive market. ? Not able to generate an effective marketing strategy. Solution: ? „Mukha-Mukhi? scheme ? Heads of Departments granted complete financial autonomy.
Contd….
? Technology
Development Council formed in association with BARC ? Entered into an MoU with NPCIL. ? Manpower restructuring was done by rightsizing the organization?s staff.
?
?
?
Privatization: any measure resulting in transfer of ownership and/or control over assets or activities from the public to the private sector. Divestiture : Transfer of property rights from state to a private party whether against payment or not; it is generally accompanied by a change in control mechanism. Disinvestment : a process inverse to the act of investing; or action for sale of an investment leading to the end or winding up of an investment.
Contd…
.
? Divestment
: transfer of property rights from state to a private party. The act of divestment is known as divestiture. ? Rolling Privatization : promotes enterprises in public sector with a view to handing them over to private sector. ? Greenfield Privatization : permits private enterprise into areas hitherto reserved for public sector. ? Cold Privatization: public enterprises required to compete in the market as if they are private enterprises
? The
term privatization is broader than divestiture. ? The privatization process began in UK in the 1980s. ? Contracting out delivery of public service to the private sector and financing of the service by the government.
Contd…
? De-regulating
statutory monopolies and removing licensing barriers. ? Selling nationalized companies by offering stock to employees and customers. ? The Indian Government advocated privatizing non-strategic units through gradual disinvestment or strategic sale. ? The first privatization was of Modern Foods in 1999-2000. ? In 2000-01 a major privatization was through strategic sale of Bharat Aluminium Company Ltd. (BALCO) .
? Lagan
Jute Machinery Company Limited (LJMC)
? Started
making losses from 1996-97; turnover was on a decline. ? Approved for privatization in 1997 through sale of 74% stake to a strategic partner. ? Strategic partner retained the same senior management team; no retrenchment of workers. ? Introduced new products, revamped the marketing function.
? Focus
on core businesses for the divesting firm (e.g. sale of TOMCO by the Tatas) ? Declining profitability of businesses in which the firm is operating ? Getting rid of unprofitable business (e.g. sale of ITC Classic by ITC) ? Need for funds for other activities
? Disinvestment
of CPSEs began in 1991-
92. ? To raise resources, encourage wider public participation, and promote greater accountability. ? Up to 20% of the Government equity in selected PSEs was to be offered to Mutual Funds, Financial/Investment institutions, workers and the general public
? The
Ministry of Industry (Department of PEs) constituted a Public Sector Disinvestment Commission in 1996. ? The commission was wound up in 2004. ? The Department of Disinvestment became one of the departments under the Ministry of Finance.
? Redeploying
resources locked up in nonstrategic PSEs in areas that are much higher on the social welfare priority. ? Stewing further flow of resources for the nonstrategic activities. ? Ensuring that the taxpayers? money is not subjected to the volatility of the market. ? Converting PSEs into strong private commercial enterprises. ? Reducing public debt and pressure on government resources. ? Providing vibrant, large and deeper capital market with investment alternatives to investors as well as assuring them easy exit options.
? The
proceeds from the disinvestment may be placed separately in a Disinvestment Fund. ? Formation of a Standing Empowered Group. ? Government should frame a clear-cut policy statement on the terms of VRS on a stable and long-term basis.
Contd…
? The
sale of shares of PSEs like GAIL (49%), ITDC (74%), Modern Food (100%) (1st Report). ? Phasing out of administered price mechanism for all petroleum products within two years (2nd Report, April, 1997). ? Offloading PSEs equity (3rd Report, June, 1997). ? About 10-15% of the PSU employees may take VRS which can be structured like a pension cum insurance scheme
S.No.
1. 2. 3.
Name of CPSEs
BHEL BHEL BPCL
Year
1992-93 1994-95 1992-93
Amount (Rs. Crore)
8.21 301.34 331.18
4.
5. 6. 7.
GAIL
GAIL GAIL GAIL
1994-95
1998-99 1999-00 2003-04
194.12
671.86 945.00 1627.36
8.
9. 10. 11.
IOC
IOC IOC SAIL
1994-95
1998-99 1999-00 1992-93
1033.65
1209.00 162.79 700.1
12.
13. 14.
SAIL
SAIL NTPC
1994-95
1995-96 2004-05
22.66
13.30 2984.07
Source :http://www.divest.nic.in/performance.htm
S.No.
Name of the CPSEs
Percentage of equity disinvested
Name of the buyer Indian Oil Corporation Limited Indian Oil Corporation Limited
Proceeds realised (Rs. In crore) 148.80
1.
BRPL (Bongaigaon 74.46 Refineries & Petrochemicals Ltd.) Madras Refineries Limited (Chennai Petroleum Corporation Limited) Kochi-Refineries Limited (KRL) 51.81
2.
509.33
3.
55.04
Bharat Petroleum Corporation Limited
659.10
Source :http://www.divest.nic.in/performance.htm
Year
Name of the CPSE disinvested
Modern Food Industries (India) Ltd. Bharat Aluminium Company Ltd. LJMC Ltd.
Type of disinvestm -ent
Strategic Sale
Name of buyer
%age of equity sold
74
Residual Amount equity realized of govt. (Rs. Crore)
26% 105.45
1999-00
Hindustan Lever Limited
2000-01
Strategic Sale
Sterlite Industries (India) Ltd. Murlidhar Ratanlal Exports Ltd.
51
49%
551.50
2000-01
Strategic Sale
74
26%
2.53
2002-03
Hindustan Strategic Zinc Limited Sale
Sterlite Opportunities & Ventures Limited
26
49.92%
445
Source :http://www.divest.nic.in/performance.htm
? Devolution
of full managerial and commercial autonomy to successful, profit-making companies. ? Profit-making companies will not be privatized. ? All privatizations will be considered on a transparent and consultative case-by-case basis. ? Retain existing “Navratna” companies in the public sector.
Contd….
? Raise
resources from the capital market. ? Modernize and restructure sick public sector companies. ? The chronically loss making companies will either be sold off or closed. ? Induct private industry to turn around companies that have potential for revival. ? Encouraging collaboration between PSUs and foreign companies. e.g. BHEL and UK-based Sheffield Forge-masters and Japan?s Kobe Steel.
Contd….
? Encouraging
collaboration among PSUs. e.g.NTPC and NPCIL. ? Disinvestment should be done after restructuring and image building of the enterprise. ? Board for Reconstruction of Public Sector Enterprises.
1.Cherunilam, F. (2008) Business Environment Himalaya Publishing House, Mumbai. 2.Naib, S. (2004) Disinvestment in India – Policies, Procedures, Practices, Sage Publications, New Delhi. 3.Dhameja, N & Sastry, K.S. (1998) Privatization – Theory and Practice, Wheeler Publishing, New Delhi. 4.„NPCIL & NTPC sign agreement?, The Hindu (Online edition), 15th February, 2009
5.„BHEL in talks with Sheffield, Kobe for nuclear forgings facility?, Business Line, 20th November, 2008. 6.„Restructuring strategy pays dividends?, The Hindu, 30th October, 2002. 7.www.divest.nic.in, accessed on 25th February, 2009. 8.www.afferguson.com/bulletin/corpfin.htm, accessed on 15th February, 2009.
Thank you!!
doc_359030240.pptx