Govt eyes premium on co-op equity buybacks

New Delhi, Aug 29 | Updated: Aug 30 2006, 05:30am hrs
The government is likely to amend the Multi-state Cooperative Societies (MCS) Act to ensure that major firms like Kribhco do not shortchange it by repatriating government equity at face value. It feels the government must extract a premium from such cash-rich co-operatives.

Iffco had earlier repatriated the entire government equity of Rs 290 crore at par. The finance ministry and the fertiliser department contend that a fair valuation could have fetched the exchequer another Rs 3,000 crore or so.

A panel of secretaries under Cabinet secretary BK Chaturvedi had discussed the issue and was looking at amending the Act to ensure the government was fairly compensated for its equity in MCSs, sources said.

The idea is that MCSs must get shares valued by an independent valuer and obtain prior government consent before buyback of shares. The MCS Act allows multi-state cooperatives to repatriate and redeem equity at par. There are 19 such societies at present. Each has hundreds of intra-state societies as members.

The CoS had referred the proposal to amend the Act to the law ministry, sources said. The CoS comprises finance, agriculture, fertiliser and law secretaries.

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Govt feels shortchanged by fertiliser majors which denied it a fair share of the wealth created out of its funds and management
It reckons it would have got an extra Rs 3,000 crore for its equity in Iffco, had it been given fair price
MCA Act amendment to ensure that firms negotiate price with govt before equity buyback

Iffco had turned autonomous in September 2004, with no government director on its board. Subsequently, the company acquired Oswals Paradeep phosphate plant for Rs 2,180 crore. It is now planning to set up a $125 million phosphoric acid plant in Egypt. Iffco officials said as an independent entity, the fertiliser major increased both profitability and sales.

A government official told FE, The government should get a due share of the wealth these companies have created. The firms should not be allowed to take unilateral decisions on repatriation of equity.

Since the MCS Act was introduced in 2002, Kribhco has reduced government equity from Rs 328 crore to Rs 270 crore. The repatriation was, of course, at face value. Kribhco officials, however, defended the move saying, the government stake continued to be about 68%.

In fact, Iffco paid back most of the government equity during the NDA regime. When UPA took over, a Rs 60-crore cheque for the residual 12% government stake was encashed.