With the completion of buyback of shares by MOIL and NMDC, the total amount spent by government owned companies to buy back their own shares has reached `11,224.96 crore. After the buybacks by Coal India and Bharat Electronics, which are currently underway,this figure is likely to touch `17,045 crore.
Last week both MOIL and NMDC announced in their re- spective regulatory filings that they have completed their buy- backoffersworth`863croreand `7,527 crore. Of the total buy- back offers worth `26,930 crore thisyear63%or`17,047wascon- tributed by government-ownedcompanies .Share buy backs havebecomeaneffectivetoolfor the government to meet its dis- investment target.
According to Department of Investment and Public Asset Management (DIPAM), these guidelines any CPSE with a net worth of `2000 crore and a cash and bank balance of `1,000 crore can exercise the option of a buy- back. The government had set a divestment target of `56,500 crore for FY 17 in the Union Budget on February 29,2016. The BSE PSU has risen by 12.4% from the January till date with earnings per share of `278.89. The benchmark Sensex has gained 5.4 % during this period.
According to Securities and Exchange Board of India (Sebi) rules, a company can buy back shares either from its existing shareholders on a proportion- ate basis through a tender offer, the open market or odd lot holders. In the case of a tender offer, the company has to deposit 25% of the consideration in the es- crow account if the consideration does not exceed `100 crore.
Firms offer buybacks to enhance their value since the shares bought back are extinguished and the earnings per share gets a boost.