Nearly two dozen central public sector enterprises (CPSEs), including Coal India, NMDC, NTPC and Nalco, will have to initiate steps to buy back a portion of their shares from the government in FY17, after New Delhi issued comprehensive guidelines on Tuesday on capital restructuring of the CPSEs by way of buyback, dividends, issue of bonus shares and splitting of shares.
The CPSE buyback of shares could be of significant help to the Centre to achieve the Rs 36,000-crore revenue target set from minority stake sales in CPSEs in the current fiscal. It would raise another Rs 20,500 crore from strategic stake sales in them.
CPSEs having surplus cash will no longer be able to park funds in fixed deposits in banks, which officials said generated a very poor post-tax return of 4-5%. “Every CPSE having net worth of at least Rs 2,000 crore and cash and bank balance of over Rs 1,000 crore shall exercise the option to buy back their shares,” the Department of Investment and Public asset Management (DIPAM) said in an office memorandum.
It also said all other profitable CPSEs will have to examine the option of buyback by analysing their cash and bank balance, capex and borrowing plans.
The earlier guidelines on buyback were only enabling in nature. These guidelines are in line with the focus of the government on adopting a comprehensive approach for efficient management of its investment in CPSEs as announced in the Budget on February 29.
On dividend, the new guidelines mandated that every CPSE would pay a minimum annual dividend of 30% of profit after tax or 5% of the net worth, whichever is higher subject to the maximum dividend permitted under the extant regulations. A CPSE could seek to pay lower dividend subject to consent of administrative ministry with the approval of financial adviser after taking into account factors such as capex and borrowings plans. Under earlier rules, CPSEs were mandated to pay an annual dividend of 30% of PAT or 30% of government’s equity, whichever is higher.
As the earlier guidelines asking cash-rich CPSEs to issue bonus shares were scantily followed, the new DIPAM order said every CPSE will have to issue bonus shares if their reserves and surplus is equal to or more than 10 times of its paid up capital. Further, all CPSEs have to consider issue of bonus shares if their reserves and surplus are more than five times of the paid up capital. If bonus shares are not issued, the official (government) nominee director would ensure that the board of the company analyse the justification.
The order also replaced general guidelines on splitting of shares, by mandating that every CPSE, whose market price or book value of its share exceeds 50 times of its face value, will have to split shares to make it affordable for retail investors.
While the guidelines on dividend will apply from FY16, others would kick in from FY17.
At the end of March 2015, CPSEs had a surplus cash of about Rs 2.55 lakh crore. Out of the 235 CPSEs, 157 were profit-making. Seven CPSEs, including Coal India, accounted for cash and bank balance of more than Rs 1 lakh crore.