Lok Sabha Question No. 1849 (UNSTARRED), answered on 2022-03-14
Subject: Disinvestment of Central Electronics Limited
Ministry: FINANCE
Asked by: A. Chellakumar

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF INVESTMENT AND PUBLIC ASSET MANAGEMENT

## LOK SABHA UNSTARRED QUESTION NO. 1849

TO BE ANSWERED ON MONDAY, MARCH 14, 2022

PHALGUNA 23, 1943 (SAKA)

## Disinvestment of Central Electronics Limited

## 1849. DR. A. CHELLAKUMAR:

Will the Minister of FINANCE be pleased to state:

- (a)  whether  the  Government  has  evaluated  technological  and  managerial  experience  and competence  of  M/s  Nandal  Finance  &  Leasing  Private  Limited  to  whom  the  Government intends on selling the Central Electronics Limited (CEL);
- (b) if so, the details thereof and if not, the reasons therefor;
- (c) the details of the criteria upon which all potential buyers were assessed and upon which the decision to approve M/s Nandal Finance & Leasing Private Limited was taken;
- (d) the details of fixed assets owned by M/s Nandal Finance & Leasing Private Limited; and
- (e) the details of the valuation of Central Electronics Limited (CEL)?

## ANSWER THE MINISTER OF STATE IN THE MINISTRY OF FINANCE

## (DR. BHAGWAT KISHANRAO KARAD)

(a) and (b): As per due process of strategic investment relating to Central Electronics Limited, open bids were invited in a transparent manner based on the criteria of networth (Rs 50 crore) as laid down in PIM/EoI. The technological and managerial experience of the bidder are not among the relevant criteria. It is a part of the disinvestment policy of the Government to not make sectoral experience a qualification criterion for bidders to expand the universe of bidders and  provide  them  a  level  playing  field.    Further,  investors  with  the  right  resources  and entrepreneurship can enter into any business with the help of managers and employees of the company  being  disinvested  as  well  as  through  additional  hiring.  CEL  is  proposed  to  be

disinvested on 'a going concern' basis, which means existing employees including experts/professionals will continue

(c): After receipt of sealed financial bids and in line with the approved procedure for strategic disinvestment, a 'Reserve Price' was fixed based on valuations by the Transaction Adviser (TA) and the Asset Valuer (AV) using respective methodologies as per the established process. After the independent fixation of Reserve Price, the already received sealed financial bids were opened in the presence of the bidders, which were as follows:

- (i) M/s Nandal Finance and Leasing Pvt Ltd
- (ii) M/s JPM Industries Ltd.

The higher of the two price bids submitted by M/s Nandal Finance and Leasing Pvt Ltd was found to be above the reserve price . The Alternative Mechanism (AM), comprising Hon'ble Minister of Road Transport and Highways, Hon'ble Finance Minister, and Hon'ble Minister of  State  (Independent charge) Ministry of Science and Technology, empowered by CCEA, approved the highest price bid of M/s Nandal Finance and Leasing Pvt Ltd for sale of 100% equity  shareholding  of  GoI  in  Central  Electronics  Ltd  (CEL)  on  29.11.2021  based  on recommendations of Core Group of Secretaries on Disinvestment (CGD) and Inter Ministerial Group  (IMG).  Subsequently  some  allegations  have  been  received  from  CEL  Employees Association. Pending legal examination of some of these allegations, the IMG has decided to put the Letter of Intent (LOI) on hold. Accordingly, the LOI has not been issued yet.

(d): As per the documents verified by the Transaction Advisor, the successful bidder has a networth of about Rs.143 crore as on 31.03.2021 against the net-worth criteria of Rs.50 crore as per PIM/EoI.

(e): In keeping with the best market practices, recommendations of the erstwhile Disinvestment Commission and DIPAM's valuation Guidelines, four methodologies are usually employed for valuation of CPSEs namely Discounted Cash Flow method (DCF), Balance Sheet Method, Market Multiple Method and the Asset Valuation method subject to feasibility and applicability in  particular  circumstances  of  the  case.  While  the  first  three  are  Business  Valuation methodologies  generally  used  for  disinvestment  as  a  going  concern  and  are  done  by  the Transaction Advisor, Asset Valuation approach for arriving at Net Asset Value (value of assets minus various liabilities) is relevant in case of closure/liquidation of a company and is carried

out by the Asset Valuer appointed for the purpose. In the present transaction, Discounted Cash Flow  method  (DCF),  Balance  Sheet  Method,  and  the  Asset  Valuation  method  have  been worked out for the equity value by the professional advisers (Transaction Adviser and Asset Valuer).

DCF method is the method commonly applied to 'going concerns', as it expresses the present value of a business as a function of its future cash earning capacity discounted to its present value by applying an appropriate discounting rate. The valuation of equity arrived at by this method of valuation was INR 193.98 Crore.

Balance Sheet methodology values a business on the basis of the book value of its underlying assets.  While  this  method  considers  the  amount  that  is  historically  spent  and  earned  in  a business, it does not consider the earnings potential of the assets and is, therefore, seldom used for  valuing  a  going  concern.  Further,  the  book  value  of  assets  and  liabilities  may  be significantly different from the market value of assets and liabilities. As per the Balance Sheet Methodology, the valuation of equity in case of CEL was Rs 111.23 Crore.

Asset Valuation method essentially estimates the cost of replacing the business or the value that can be realized by liquidating the business by selling of all the assets of the Company, and paying off the liabilities. For arriving at Net Asset Value, the liabilities like settlement of all borrowings on the balance sheet, including bank loan, Government loan, the current liabilities (trade creditors, non-trade creditors, contingent liabilities & statutory liabilities), and certain other closure related liabilities such as estimated VRS cost for all employees, Capital Gain Tax liability are adjusted (reduced) from the Valuation of Assets. Asset Valuation method is useful in  case  of  liquidation/closure  of  the  business  and  generally  not  used  for  sale  on  a  'going concern' basis. In the case of CEL, the strategic disinvestment is on a 'going concern' basis so that the company employees continue to remain employed and the company continues to remain in business. In fact, there are obligations relating to employee protection, asset stripping and business continuation on the part of strategic acquirer.

However, asset valuation has been carried out by the professional Asset Valuer as per laid down the policies.  For the purpose of arriving at the Net Asset Value of CEL as per Asset Valuation method, the Professional Asset Valuer has valued immovable assets (Land, Building, Plant & Machinery & all other assets) at Rs.251.45 crore; and current assets, non-current assets,

cash balance, Capital Work in Progress (CWIP) & intangible assets at Rs.330.99 crore. As regards the valuation of land, CEL has 2,41,614 square yards of leasehold land at Sahibabad, Ghaziabad, Uttar Pradesh. The land was leased for a period of 90 years from UPSIDC since 28.02.1975 for manufacturing of solar PV modules & systems. About 46 years of lease period has already expired. The balance lease period of about 44 years has been taken for arriving at market value of the lessee interest in the subject land. The liabilities of the Company including bank  and  government  borrowings,  current  liabilities  and  other  liabilities  were  valued  at Rs.409.56  crore  which  were  deducted  from  the  value  of  its  assets  as  per  Asset  Valuation methodology. The valuation arrived at by this method of valuation of equity was INR 172.87 Crore.

The IMG, after due consideration of all relevant factors, recommended the 'Reserve Price' of Rs. 194 Crore arrived at by using the DCF method of valuation, which was duly considered and approved by the Core Group of Secretaries on Disinvestment. It may be noted that on opening of financial bids, highest price bid received through open competitive bidding process was Rs. 210.006 crore which was significantly higher than the Reserve Price.

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