With NTPC flagging a whopping Rs 28,000-crore capex plan for FY18, the Centre has exempted the power PSU from buyback obligation, which could have fetched the exchequer nearly Rs 8,000 crore in the current fiscal. A company official confirmed that the government won’t push NTPC for buyback owing to its strong capex pipeline. However, the government’s other plan of selling 10% of its stake in NTPC to raise around 13,000 crore in FY18 through an offer for sale is on track.
During the recent discussions with the department of investment and public asset management (DIPAM), NTPC had sought exemption from buyback, saying its massive capex plan needs to be partly funded from its reserves. NTPC plans to fund about 30% (Rs 8,400 crore) of planned capex in FY18 from its reserves and surplus, which stood at Rs 87,985 crore on March 31, 2017.
Had NTPC undertaken buyback, then, it would have met the entire capex requirement from market borrowings, a prospect it wanted to avoid. The company’s capital expenditure in FY17 was Rs 28,252 crore. The country’s largest power producer has about 24,000 mega watt (MW) of projects under construction, which require Rs 1 lakh crore of capital expenditure.
On May 27, 2016, the Centre had issued a capital restructuring order mandating every central PSU with a net worth above Rs 2,000 crore, and cash and bank balance of over Rs 1,000 crore to exercise the option to buy back a portion of their shares with effect from FY17. NTPC’s net worth was Rs 96,231 crore while its cash and bank balance was of about Rs 3,000 crore as on March 31, 2017. Companies with significant capex plans can seek exemption from buyback compliance, a government official said.
The capital restructuring rules have paid off as 7 PSUs bought back shares worth Rs 18,963 crore or 41% of total disinvestment receipt of Rs 46,247 crore in FY17.
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Taking strong exception to PSUs neither meeting capital restructuring guidelines nor seeking exemption from this, the government official said the government may cut performance linked pay (PRP) in about half a dozen Central units this year.
Share buybacks, which became a key vehicle of disinvestment of government shares in FY17, are likely to be replicated this year as well to meet the ambitious disinvestment target of Rs 72,500 crore. According to DPAM) criteria, nearly 20 central PSUs qualify for buyback including ONGC, BHEL, Oil India, Mazagon Dock, Ircon International, Airports Authority of India and SJVN.
Last week, government departments held meetings with nearly two dozen PSUs to assess their surplus cash position and whether these units complied with DIPAM guidelines. As on March 31, 2016, central PSUs had cash surplus of Rs 2.4 lakh crore.
The government is of the view that buybacks improve some key financial ratios such as earnings per share of the firms and, thereby, investor interest in them, enabling them to tap the market for funds when needed.