PSUs cold to special dividend calls even as stake sales lag

Written by fe Bureau | New Delhi | Updated: Dec 16 2013, 10:17am hrs
Finance minister P Chidambaram recently said that Bharat Heavy Electricals (BHEL) and Coal India (CIL) have been asked to come back with alternative options like buybacks and special dividends given their stake sales have hit roadblocks. But even these dont seem easy options given the way the public sector undertakings concerned are likely to react to North Blocks missives.

A BHEL official said on condition of anonymity that the companys board meeting last week did not discuss the special dividend option, adding that the cash reserve position of the firm (about R6,000 crore) is not robust enough to allow a handsome payout to the promoter at this juncture.

What has added to the finance ministrys woes is oil minister M Veerappa Moilys statement opposing a 10% stake sale in Indian Oil Corporation, given that its stock has nearly halved since 2010, when the divestment was first proposed.

The issue was scheduled to hit the market in December but Moily now wants the share to recover before it is pushed though. The roadshows for the issue in Hong Kong, Singapore and the US have drawn lukewarm response, while the one planned in Dubai was cancelled.

With the Rs 40,000-crore disinvestment target for FY14 looking ambitious, the government had set in motion a plan to milk some of the major PSUs including CIL and BHEL, whose stake sale plans had hit a hurdle, through the dividend route. The coal PSUs board is meeting on Monday in Kolkata and according to sources the demand from the government for a special divided is not the agenda, although it could be discussed informally.

Meanwhile, the finance ministry has prepared a draft Cabinet note saying that Hindustan Zinc cannot be classified as a PSU and that parliamentary approval is not needed to offload the governments residual stake in the firm. The governments tax revenue growth is lagging gross direct tax receipts grew 13.2% in April-November against the 18% budgeted for FY14 and indirect tax collections in the first half grew 3.5% compared with the 19% budgeted.

Given this and the fact that beyond a limit it cant fiddle with expenditure numbers, the government cant allow a slippage in the non-tax revenue and hence the attempts to boost proceeds through options other than disinvestment.

Sources also said that a buyback is more palatable to CIL trade unions. This, along with a special dividend, is expected to allow the government to mobilise Rs 20,000 crore as against around Rs 9,000 crore from a 10% follow-on public offering planned earlier. CIL chairman S Narsing Rao last week said it was for the government to take a call on the modalities for revenue generation from the firm. Rao had said disinvestment was not on the agenda for Mondays board meeting. The board had informally discussed the buyback option a couple of months back.

The BHEL official said the heavy industry ministry has been opposed to any move for an FPO and is also not supportive of a buyback and special dividend programme due to the tough business cycle and the drying up of fresh orders.

The government had originally planned to divest 10% in CIL, but due to stiff opposition from unions, the plan was subsequently dropped. The government holds 90% in the coal monolith. By selling 5% in BHEL, the government was expecting to fetch over Rs 1,300 crore. Against this years disinvestment target of Rs 40,000 crore (additionally, Rs 14,000 crore is to be raised through the sale of residual stakes in Hindustan Zinc and Balco), the government has managed just Rs 1,325 crore so far.

The government continues to be ambivalent towards the sale of a part of its shares of ITC, Axis Bank and Larsen & Toubro held by an asset management company for strategic reasons. These shares are valued at around Rs 43,000 crore, but it remains to be seen if this option would indeed be exercised this fiscal. Anyway, the finance ministry hasnt started a formal process for this so far.