Coal India, NMDC, MOIL, Nalco & BEL have started the process.
Notwithstanding a volatile equity market that has slowed down public offers, 2016-17 promises to be a bumper year for the government when it comes to disinvestment revenue as 30 cash-rich PSUs including ONGC, NTPC, Power Grid, ONGC Videsh and BHEL will start buying back a portion of their own shares during the year.
These buybacks could fetch the government, the majority owner of the PSUs, around Rs 80,000 crore. Although all of these are unlikely to materialise in the current financial year, a major chunk of the funds might flow into government coffers before April, 2017, official sources told FE. The Centre’s disinvestment target for the year is Rs 56,500 crore.
On May 27, the Centre issued a capital restructuring order mandating every central PSU with net worth of above Rs 2,000 crore and cash & bank balance of over Rs 1,000 crore to exercise the option to buy back their shares with effect from FY17. The boards of the PSUs will have to take a decision in this regard by September 30, an official said. Even though PSUs can seek exemption from the requirement citing capex and other requirements, according to the sources, no firm has approached the Department of Investment & Public Asset Management (DIPAM) for such relaxation so far.
Five PSUs — Coal India, NMDC, MOIL, Nalco and Bharat Electronics — have already taken the lead in this regard and are currently in the process of buying back a portion of their shares, that could fetch the Centre about Rs 13,500 crore. It takes 2-3 months to execute buyback by a firm.
Othe PSUs likely to buy back shares include NHPC, REC, Oil India, Neyveli Lignite, SJVN, Indian Renewable Energy Development Agency, South Eastern Coalfields, Shipping Corporation, Northern Coalfields, Central Coalfields, Mahanadi Coalfields, Western Coalfields, BPCL, Engineers India and Mazagon Dock.
With volatile markets tying the hands of DIPAM to come out with big-ticket offer for sales (OFS) or IPOs, the buyback is set to be a major money spinner this year boosting government’s non-debt capital receipts.
The companies have been asked to buy back shares to the extent they can by the amount equivalent to 25% of the aggregate of their fully paid up share capital and free reserves. At end-March 2015, CPSEs had a surplus cash of about Rs 2.55 lakh crore.
ONGC, the country’s largest PSU oil explorer, had a cash & bank balance of about Rs 10,000 crore while its reserves and surplus account stood at Rs 1,47,574 crore at end-March, 2016. Despite plans to sell a 5% stake in ONGC, the Centre could not execute it out due to volatile market conditions and fluctuations in commodity prices.
The government is of the view that buybacks improve financial parameters of the firms and thereby investor interest in them, as the firms would cancel the shares bought from shareholders, enabling them to tap market for funds when needed.
After missing Budget disinvestment targets for six years, the government could exceed the target for the current fiscal. The Budget estimate for disinvestment comprises Rs 36,000 crore from PSUs and Rs 20,500 crore from strategic disinvestment. The government has raised Rs 3,183 core so far in 2016-17 via disinvestment in NHPC and sale of small portions in Indian Oil and NTPC to their employees.