More central public sector enterprises (CPSEs) may buy back their shares or shares in other PSEs this year as the government looks to use idle cash to boost to disinvestment revenues.
After the Budget in February laid greater stress on efficient management of government investment in CPSEs by addressing issues such as capital restructuring and dividend, the disinvestment department oversaw share buybacks by cash-rich Hindustan Aeronautics Ltd (HAL) and Bharat Dynamics in March. The government sold back a portion of its stake in these companies to raise about `4,500 crore.
“For the first time, the CPSEs are now looking at their balance sheet in a professional manner. They are examining the option of capital restructuring,” one official familiar with the matter told FE. That would mean, the PSUs would have either to consider giving higher dividends or buy back shares if they weren’t using idle cash for capex.
According to the audited data available at the end of March 2015, CPSEs had a surplus cash of about `2.55 lakh crore. Out of 235 CPSEs, 157 were profit-making. Seven CPSEs, including Coal India, accounted for cash and bank balance of more than `1 lakh crore (see chart).
According to a government analysis, nearly two dozen cash-rich companies were parking funds in banks. Post-tax, the bank deposits didn’t even yield more than 4-5% annual return, the official said.
Buyback was a professional approach adopted by the private sector to use surplus cash to improve the key financial ratios such as price-to-earnings (PE), dividend-equity, return on capital returns of total funds deployed, etc. HAL, in which the government might offload 10% stake this year, would command a much higher value, officials said.
With the government scaling up monitoring of capex and performance of PSUs on various parameters, there would be no room for CPSEs to adopt a laidback attitude on use of surplus cash, they said.
Higher tax collections than budgeted and a late surge in disinvestment revenue helped the government contain the fiscal deficit within the budgeted level of 3.9% of GDP.
Thanks to the new approach of the government, it managed to exceed FY16’s revised disinvestment target of Rs 25,300 crore by Rs 6,849 crore. Besides buyback of shares by HAL and Bharat Dynamics, the government sold bonus debentures in NTPC to raise Rs 8,152 crore in March.
With the implications of the new approach to manage investments visible, the government might consider buyback options for CPSEs on a case-to-case basis, sources said.
Out of Rs 56,500 crore disinvestment revenue target set for next fiscal, Rs 36,000 crore is estimated to come from minority stake sales in PSUs and the remaining Rs 20,500 crore from strategic stake sales.
