Financial Management of PSU’s and

Venture Capital

PREPARED

BY

“SUJEET YADAV”

Government-owned corporations.

Majority (51% or more) of the paid up share capital .

Public Sector Undertakings (PSUs) can be classified :

Public Sector Enterprises (PSEs)

Central Public Sector Enterprises (CPSEs)

Public Sector Banks (PSBs)

30-8-2012 3PSU’S & VC

In 1951(First 5 year plan):

Number of CPSU’s were only 5 with an investment of Rs.290mn only.

In 1992(8th 5 year plan):

Number of CPSU’s were only 246 with an investment of Rs.1354mn.

In 2008(11th 5 year plan):

Number of CPSU’s were only 244 with an investment of Rs.4211mn.

30-8-2012 4PSU’S & VC

Statutory corporations created through acts of

parliament(HPCL/BPCL).

Departmental enterprises(Railways).

Government companies .

30-8-2012 5PSU’S & VC

Strong foundation for the industrial development of the country

Less concerned with making profits

Key role in nation building activities

Leverage to the Government

Rural development

30-8-2012 6PSU’S & VC

Maharatna

Navratna

Miniratna

30-8-2012 7PSU’S & VC

Maharatna :Average annual turnover of Rs 20,000 crore .Average annual net worth be Rs 10,000 crore.

Eg. Coal India Limited, Indian Oil Corporation Limited

Navratna :Empowers PSEs to invest up to Rs. 1000 croreFreedom to enter joint ventures, form alliances and float

subsidiaries abroad.Eg. Bharat Petroleum Corporation Limited, GAIL (India) Limited

Miniratna :Miniratna category I-pre-tax profit should have been Rs30 crores. category II-Profit for the last three years .Have a positive net worth.Eg. Airports Authority of India , Bharat Sanchar Nigam Limited

30-8-2012 8PSU’S & VC

Role of financial advisor

Capital budgeting decisions

Capital structure decisions

Working capital management

Pricing policy

30-8-2012 9PSU’S & VC

30-8-2012 10PSU’S & VC

Infrastructure Development

National manufacturing policy

FDI policy

MOU

Investment in CPES

Restructuring of loss making CPSE’s

30-8-2012 11PSU’S & VC

Disinvestment is a process in which the public undertaking reduces its portion in equity by disposing its shareholdings.

Disinvestment as per SEBI(substantial acquisition of shares) guideline, means the sale by the central/state government, of its shares or voting rights and control, in PSU

The disinvestment reduces government participation in the company.

30-8-2012 12PSU’S & VC

Transfer of ownership to the government when the dilution is beyond 51%.

Imperative for the government to sell the part of its holdings.

30-8-2012 13PSU’S & VC

To focus on core business of E&P, ONGC has set strategic objectives of:

Doubling reserves (i.e. accreting 6 billion tonnes of O+OEG).

Improving average recovery from 28 per cent to 40 per cent.

Tie-up 20 MMTPA (Million metric tonne per annum) of equity Hydrocarbon from abroad by 2018.

Accrete 1 Billion tonnes of resources from unconventional sources of energy.

The focus of management will be to monetize the assets as well as to assetise the money.

Financials (2010-11)

ONGC group’s turnover during 2010-11 has been Rs.127,905 Crore with net profit of Rs.22,456 Crore. ONGC paid highest-ever dividend of Rs.7,486 Crore. The Net Worth of ONGC Group of companies is Rs.114,531 Crore.

During 2010-11, the turnover of ONGC (on standalone basis) has been Rs.69,532 Crore with net profit of Rs.18,924 Crore; the highest-ever despite sharing under-recovery of Rs.24,892 Crore to the Oil Marketing Companies (OMCs) as per the instructions of the Government of India. Net worth of ONGC (on standalone basis) has been Rs.96,709 Crore.

OVL’s(ONGC videsh limited) consolidated gross revenue increased by 21% from Rs.15,383 Crore during 2009-10 to Rs.18,683 Crore during 2010-11 and consolidated net profit increased by 29% from Rs.2,090 Crore during 2009-10 to Rs.2,691 Crore during 2010-11.

30-8-2012 PSU’S & VC 17

COMPANY NAME NETWORTH (MN)

Oil and Natural Gas Corporation LimitedNTPC LimitedState Bank of IndiaBSNLIndian Oil Corporation LimitedSteel Authority of India LimitedNHPC LimitedNuclear Power Corporation of India Limited Power Grid Corporation of India Limited Bharat Heavy Electricals Limited

965,505.3676,049.7649,860.4629,365.2543,187.9357,000.3245,812.1239,808.8211,109.0200,182.5

30-8-2012 18PSU’S & VC

30-8-2012 PSU’S & VC 19

I call my invention

“the wheel” but I have

been unable to get any venture capital

Hmm. His

idea is good it

will generate lots

of profit

I will give you the capital &

finance for developmen

t of your innovation

VC - Funds made available for startup & SB

VC - Money provided by professionals

Venture Capitalists generally:

• Finance new and rapidly growing companies

• Purchase equity securities

• Assist in the development of new products or

services

• Add value to the company through active

participation

30-8-2012 PSU’S & VC 21

Long time

horizonLack of

liquidityHigh risk

Equity

participatio

n

Participatio

n in

manageme

nt

30-8-2012 PSU’S & VC 22

• Injects long term equity finance1

• The VC is a business partner, sharing both the risks

and rewards2

• The VC’s provide practical advice and assistance3

• The VC may be capable of providing additional

rounds of funding4•

VCs are experienced in the process of preparing a

company for an IPO of its shares onto the stock

exchanges or overseas like NASDAQ, facilitate a

trade sale.

5

30-8-2012 PSU’S & VC 23

Stages of

Financing

Seed

Money

To prove a

concept

(15-25L)

Extreme

risk

Start Up

Provided to

companies

(25-60L)

Very high

risk

First

Round

Manufacturing

funds

(1-3cr)

High risk

Second

Round

Working

capital &

expenses

(2-5cr)

Sufficiently

high

Third

Round

For newel

profitable

company

(2-10cr)

Medium

Forth

Round

Bridge

Financing

for going

public

process

(100cr)

Low

Acquisition or buyout financing (10-100cr)30-8-2012 PSU’S & VC 24

30-8-2012 PSU’S & VC 25

Methods

Equity

Conditional loan

Participating

debentures

Income note

Any company or trust to carry on any activity as a venture capital fund should apply to SEBI

Minimum sum acceptable by VC fund from any investor is Rs 5lkh

VC fund is not permitted to get it’s units listed on any recognized stock exchange for first three years from the date of the issuance of units by the venture capital

VC fund should not invest more than 25% of the fund in one venture

The concept of VC was formally introduced in

India in 1987 by IDBI.

The government levied a 5 per cent cess on all

know-how import payments to create the

venture fund.

ICICI started VC activity in the same year

Later on ICICI floated a separate VC company

- TDICI

30-8-2012 PSU’S & VC 27

1) Those promoted by the Central Government controlled development finance institutions. For example:- ICICI Venture Funds Ltd.- IFCI Venture Capital Funds Ltd (IVCF)- SIDBI Venture Capital Ltd (SVCL)

2) Those promoted by State Government controlled development finance institutions.For example:- Punjab Infotech Venture Fund- Gujarat Venture Finance Ltd (GVFL)- Kerala Venture Capital Fund Pvt Ltd.

3) Those promoted by public banks.For example:

- Canbank Venture Capital Fund- SBI Capital Market Ltd

30-8-2012 PSU’S & VC 28

4)Those promoted by private sectorcompanies.For example:

- IL&FS Trust Company Ltd- Infinity Venture India Fund

5)Those established as an overseas venture capital fund.For example:

- Walden International Investment Group- HSBC Private Equity

management Mauritius Ltd

30-8-2012 PSU’S & VC 29

VC can help in the rehabilitation of sick

units.

VC can assist small ancillary units to

upgrade their technologies

VCFs can play a significant role in

developing countries

Provide financial assistance to people

coming out of universities, technical

institutes, etc

30-8-2012 PSU’S & VC 30

The online fashion site My

Wardrobe - won £6m of funding

GroupSpaces, – secured $1.3m

funding

30-8-2012 PSU’S & VC 31

30-8-2012 PSU’S & VC 32

30-8-2012 PSU’S & VC 33

30-8-2012 PSU’S & VC 34

30-8-2012 PSU’S & VC 35