Disinvestment: Narendra Modi government eyes Rs 18,000 cr from PSU buybacks

After raising a major chunk of disinvestment revenue from buybacks of shares by PSUs in 2016-17, the Centre may tap the route equally aggressively in the next fiscal as well, with a plan to raise at least R18,000 crore or 25% of overall disinvestment revenue estimate of R72,500 crore for the year. According to sources, the government has lined up a clutch of PSUs that will opt for buying back their own shares in 2017-18.

On May 27, 2016, the Centre had issued a capital restructuring order mandating every central PSU with a net worth above R2,000 crore and cash and bank balance of over R1,000 crore to exercise the option to buy back a portion of their shares with effect from 2016-17. The move, aimed at nudging the PSUs to utilise their idle cash to reward shareholders, has turned out to be a money spinner for the shareholders, particularly the government.

After the government mandated cash-rich PSUs to undertake buybacks like their private sector peers, the Centre is in the process garnering a record R19,500 crore or 43% of R45,500 crore disinvestment revenue estimate in 2016-17 from buybacks of seven PSUs including Coal India, Nalco, NMDC and NHPC.

 

Apart from the PSUs mentioned in the chart, separately, four Coal India subsidiaries have announced buyback of shares worth R5,060 crore, nearly 80% of which (R4,000 crore) will accrue to the Centre as dividend early next year, the sources added.

The government owns about 80% in the coal miner. On Monday, Coal India announced an interim dividend of R18.75 per share for 2016-17, down from R27.40 a year earlier, and the payout will cost the company R11,640 crore, according to Bloomberg.

While PSUs with significant capex plans can seek a waiver from buybacks, over a dozen PSUs qualify as per the criteria for buybacks. These also include ONGC, Power Grid, REC, SJVN and Indian Renewable Energy Development Agency, but these companies might not exercise the option in 2017-18.

The companies are usually asked to buy back shares to the extent they can by the amount equivalent to 25% of the aggregate of their fully paid-up share capital and free reserves. At end-March 2015, central PSUs had surplus cash of about R2.55 lakh crore.

The government is of the view that buybacks improve financial parameters of the firms and, thereby, investor interest in them, as the firms would cancel the shares bought from shareholders, enabling them to tap the market for funds when needed.

The government has set 2017-18 divestment target at R72,500 crore, a 60% jump from the estimate of R45,500 crore in 2016-17. Apart from buybacks of PSUs, sale of the government’s SUUTI stakes and further pruning of Centre’s stakes in certain big PSUs like NMDC and Nalco, IPOs of PSUs and a proposed new PSU ETF are expected to boost the disinvestment revenue next year.