PFC will be one of the first public-sector companies to go in for a share buyback.

A senior power ministry official told The Financial Express the buyback option for PFC was decided at a recent meeting with power minister PR Kumaramangalam.

When contacted, PFC officials confirmed that the option to buy back shares worth Rs 550 crore was being worked out by the corporation.

"We have been given an in-principle approval by the Government, but formal clearances will have to be sought from the nodal ministry and from the Department of Company Affairs (DCA), which may take around eight to 10 days," they said.

With an initial paid-up capital of Rs 1,030 crore, the company's net worth over the years has gone up substantially. and as on date it stands at Rs 2,700 crore. With a face value of Rs 1,000 a share, the book value of each scrip is 2.7 times the face value. Therefore, for every share of Rs 1,000, the company would offer Rs 2,700 or, in other words, the buyback would be done at a premium of Rs 1,700 per share.

On a paid-up capital of Rs 1,030 crore, the number of equity shares stand at 1.03 crore, and PFC would buy back around 20.37 lakh shares at Rs 2,700 a share.

During 1998-99, PFC's profit after tax rose 37 per cent to Rs 546 crore, compared with the previous year. PFC's disbursements during 1998-99 touched Rs 2,479 crore, up 22 per cent over the corresponding year's figures, and sanctions were Rs 3,339 crore, a 14 per cent rise over the previous year.

Up to fiscal 1999, PFC sanctioned funds worth Rs 1,700 crore for 11 private power projects totalling 2,700mw. The corporation recently raised $100 million from the overseas market to meet its disbursement target for the current year. PFC will, however, continue to raise funds from the domestic market, besides direct borrowings from Indian and foreign banks.

A meaningless exercise
PFC's proposed share buyback is nothing but an exercise by the Government to raise funds to bridge the budget deficit. The exercise is meaningless, as there are no public shareholders, while the idea behind a buyback is to enhance shareholder value. That is not the case here, since there is no price discovery and only one shareholder.

The company is undoubtedly the loser, simply because there will be an outflow of Rs 550 crore with no corresponding benefits to it. PFC would have been better off if it could deploy the cash in funding a power project. If it did have surplus cash, instead of handing it over, it would have been beneficial to park it in Government securities, which at least provides a minimum return.