The dividend will partly compensate the government which has been unable to sell shares in the miner. The 5% stake sale, which would have fetched the exchequer about Rs 9,000 crore at current prices, is hanging fire due to stubborn opposition from trade unions. However, the heavy payout could hit the capex plans of the coal major, obligated to supply specified quantities of coal to power companies under the 157 fuel supply agreements (FSAs) enforced by the government.
Anxious to prevent revenues falling far below budget estimates, the government has also firmed up alternative plans for other major PSU stake sales – 10% in Indian Oil Corporation, for instance, will now be sold exclusively to ONGC and Oil India. It is also eyeing a mop-up of R3,000 crore from an exchange traded fund (ETF). The residual stake sales in Hindustan Zinc and Balco – both promoted by Vedanta Resources – are also on cards, besides the sale of a 12-13% stake in Axis Bank held through SUUTI.
“We have approved a dividend of R29 per share as recommended by the company's audit committee,” Coal India chairman S Narsing Rao told reporters after a board meeting in Kolkata. The government holds 90% in CIL.
CIL’s special dividend, the highest announced so far, has been 290% of its face value, far exceeding 97% of face value it paid last fiscal.
In FY13, CIL paid a total dividend of Rs 8,842.91 crore and dividend distribution tax of nearly Rs 1,300 crore. IN FY12, it paid a total dividend of Rs 6,316.36 crore. The larger dividend payout for FY14, incidentally, comes amid fears that CIL’s profitability may fall because of lower-than targeted production and offtake.
The dividend will be disbursed on January 25 and all shareholders as on January 20 will be eligible for it. Coal India shares closed at Rs 289.90 on BSE, down 0.35%.
CIL, which had signed 157 FSAs to feed power capacity of over 71,000 MW, needs to ramp up production, if it is to be able to produce enough coal for this level of generation. But with hefty dividends, its capex plans might be adversely impacted.
CIL had total cash reserves of Rs 62,236 crore as of March 31, 2013. It plans to spend Rs 59,500 crore in the 12th plan period between 2012 and 2017 to boost its production capacity and acquire overseas assets besides spending on developing coal blocks in Mozambique.
The finance ministry is working on different ways to achieve its disinvestment target, as the funds are critical to meet its fiscal deficit target of 4.8% in FY14. It is expected that tax revenues will see a record shortfall of Rs 60,000-70,000 crore this fiscal.
CIL's board meeting was triggered by finance minister P Chidambaram who asked heads of central public sector companies to pay higher dividends this fiscal on January 10, in the backdrop of faltering disinvestment plans.
So far, the government has mopped up less than Rs 3,000 crore through stake sale in seven PSUs. The government had also said that those companies where hurdles are making planned disinvestment impossible such as in the case of CIL will need to pay special dividends. The FY14 budget estimate for revenue generation from dividend payment from PSUs is Rs 29,870.12 crore, compared with the revised estimate of Rs 29,996.09 crore in 2012-13 from dividend paid by PSUs.
In CIL, the government had originally planned to divest 10% but lowered it to 5%. Even the 5% stake sale had to be called off as the trade unions opposed to any stake sale in the company. The government had instructed the company to pay a special dividend if the company is unable to go ahead with the divestment plan.
Indian Oil Corp (IOC), where the government plans to sell a 10% stake has been stuck as the oil ministry is not favoring disinvestment, citing a loss of over 50% in valuation of IOC scrip since 2010. The finance ministry, which is looking for a feasible and agreeable alternative, has asked ONGC and Oil India LTD if they can buy the government stake in IOC.
“The petroleum ministry has been asked by the finance ministry to look at alternatives in case the Indian Oil offer for sale does not go through. This can be considered an alternative, though how much stake and at what price is for the companies involved to decide,” said a senior finance ministry official.