The central government has identified nearly a dozen central public sector enterprises for possible share buybacks in a bid to meet its ambitious divestment target of Rs 1.05 lakh crore for the current financial year.
Officials say the list of companies that meet the government’s share buyback criteria include Power Finance Corporation, RITES Ltd, Power Grid Corp of India Ltd, Container Corp of India Ltd, IRCON International Ltd and Rail Vikas Nigam Ltd. All these companies will discuss roadmaps with their administrative ministries regarding the time and size of buybacks, sources said.
According to Department of Investment and Public Asset Management (DIPAM) guidelines, CPSEs with a net worth of at least Rs 2,000 crore and cash balance of more than Rs 1,000 crore shall exercise the option to buy back their shares. Cash-rich, state-run companies could buy back shares from the market, followed by strategic stake sales once the market improves. “Lot of units are very cash-rich and can afford a buyback. We can thereafter have strategic sales,” a senior official said.
The government has been effectively tapping share buybacks by cash-rich PSUs to meet its divestment target. In FY19, share buyback was one of the schemes that worked in favour of the centre to meet the target, with the government mopping up over Rs 10,600 crore from share buybacks by 11 public sector companies including ONGC, IOC, Coal India, Oil India and NLC.
As even earlier records show, the government had managed to raise Rs 16,500 crore in the first six months of FY17, by nudging five state-owned companies to go for share buyback.
The government has so far raised Rs 12,357 crore this year and is expected to garner close to Rs 15,000 crore from share buyback offerings, officials said, adding that more is expected to come from the buyback route as the Centre considers it the preferred option for tightening up the capital structure of CPSEs. In fact, a total of 34 central PSUs hold nearly Rs 1.8 lakh crore in cash and equivalents - a cash pile that will come in handy in case the government wants more buybacks this fiscal.
“When the markets are volatile and there is a low appetite for government stocks, the government would look more into buybacks,” said an analyst. Typically, the government prefers buybacks because the transaction cost is low and it is not a time-consuming process compared to the alternatives.
Buybacks also help improve financial parameters of PSUs, which, in turn, improves investor’s interest enabling companies to tap the equities market for funds when needed. The downside with buybacks, however, is that they have a lock-in period according to Securities and Exchange Board of India regulations, which does not allow the company to access capital for six months after executing a share buyback.
Meanwhile, finance minister Nirmala Sitharaman has also announced an additional tax of 20 per cent in case of share buyback by listed companies. The move could impact the “buyback stream” to a certain extent, but the tax would not derail DIPAM’s buyback programmes, pointed out senior officials.
Potential candidates