Indian Government Awards Maharatna Status to Four Public-Sector Enterprises

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Indian government has awarded the prestigious Maharatna status to power company NTPC Limited (BSE:532555) (New Delhi), oil and gas major Indian Oil Corporation Limited (BSE :530965) (IOC) (Mumbai), Oil & Natural Gas Corporation Limited (BSE:500312) (ONGC) (New Delhi), and Steel Authority of India Limited (BSE:500113) (SAIL) (New Delhi). The new status will help these state-controlled companies to enjoy greater autonomy in making strategic and financial decisions, provide flexibility in operations and play bigger roles in the global arena. The Maharatna status will allow these companies to make investments of up to $1.1 billion on a single project without state approval.

IOC Chairman B.M. Bansal, who collected his company's certificate from Vilasrao Deshmukh, India's Minister for Heavy Industry and Public Enterprises, said that the Maharatna status would help IOC develop new strategies and build new businesses. Although the companies were granted the Maharatna status in May, the company boards did not have the requisite number of independent directors to take advantage of the new status immediately.

In December last year, the Indian Parliament approved qualifying and selection criteria to confer Maharatna status to public-sector companies. The Maharatna status is awarded only to existing Navratna enterprises. Presently, there are 15 Navratna companies. The Navaratna status empowers a public-sector company to make investments of up to $221.8 million on a single project without seeking government approval. A Navratna company qualifies for Maharatna status if the net profit after tax and average annual turnover for the past three years is about $1.1 billion and $5.54 billion, respectively. During this period, the net worth of the company must be approximately $3.32 billion. The Maharatna status provides greater flexibility to establish joint ventures and subsidiaries to acquire global assets. The opportunity will also make these companies more globally competitive.

Since the announcement was made in December 2009, there has been a scramble among public-sector enterprises to obtain this status. However, the Department of Public Enterprises, which is the supervising authority, has indicated that the qualifying criteria will be quite stringent, so that the selection of Navratna and Maharatna companies is not diluted. The Standing Conference of Public Sector Enterprises (SCOPE) (New Delhi) has welcomed this decision. U.D. Choubey, the director general of SCOPE, said that the proposed parameters, including corporate and financial governance, would help identify well-managed companies.

Commenting on the parameters for Miniratna status, Choubey indicated that in the current business environment, the 1997 criterion of having a pre-tax profit of $6.65 million in at least one of the three previous fiscals is very low and should be reviewed. Miniratna companies have an independent investment threshold of $110 million.

SCOPE is also lobbying for increased financial autonomy for state-controlled companies. Arup Roy Choudhry, the chairman of SCOPE, said that financial autonomy must not be restricted to public-sector companies with Miniratna, Navratna or Maharatna status. However, the government has rejected this proposal. Deshmukh indicated that it will be difficult to grant blanket autonomy to companies, and the government's decision will be based on the financial health of the concerned public-sector company.

Deshmukh also indicated that the decision to award Maharatna status to NTPC Limited, IOC, SAIL and ONGC will not become a hurdle or stall the government's divestment efforts. Despite selling stakes of up to 49% in the public sector companies, the government will hold a 51% majority stake in the ventures. In 2010-11, the Indian government is targeting revenues of $8.87 billion by selling stakes in state-controlled companies. There are plans to identify eight to 10 companies every year. Divestment in ONGC is likely to be completed early next year. As of October 31, 2010, there were 246 central public-sector enterprises in India, with a total market capitalization of $329.4 billion.

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