Unable to get the support of its workers’ unions for a proposed follow-on-public offering (FPO), Coal India may finally give in to the government pressure and dig into its vast, Rs 60,000-crore-plus cash reserve to buy back the government’s share in the company and even offer the promoter additional funds by declaring a special dividend.
Sources close to the development told FE that the Coal India board may soon take up the twin proposals for approval so that they could be implemented within the current financial year. While the company is still trying to win over the unions for the proposed FPO for which the government has already appointed merchant bankers, it is looking at alternatives under pressure from the finance ministry, which is banking on Coal India to meet its 2013-14 disinvestment target of R40,000 crore.
A 10% disinvestment in Coal India has the potential to fetch close to R20,000 crore or half of this financial year’s disinvestment target. Rough estimates by the government suggest that a 5% buyback of shares by Coal India may fetch the exchequer close to R8,000 crore while a R20 per share special dividend could provide another R12,000 crore. So these measures would help fill the government kitty with the originally estimated funds.
A top company official confirmed to FE that the proposal for a 5% share buyback has already been discussed informally by the Coal India board but the matter was yet to be taken up formally. He also said that various options were being looked into, but refused to elaborate, citing the sensitive nature of the matter.
Sources, however, said that a 5% buyback could get the board’s go-ahead as early as the end of the current calendar or early next year if, by then, no clarity emerges on the FPO. The declaration of a special dividend may have to wait at least till January end or early February, by when the company finalises its third-quarter results, the sources said.
Though the special dividend could be declared out of the reserves of the company, sources said that Coal India would like to wait to see its profitability for a substantial period of the fiscal and get more clarity on long-term investment plans before taking a final call.
A sluggish economic environment and the resultant less-than-targeted levels of revenue collections have already put pressure on the government, which has set a target to reduce the fiscal deficit for the fiscal to 4.8% of GDP. It has recently announced a clutch of austerity measures — many of which were reiterations of existing rules — to curb expenditure.
So far this fiscal, the government has raised only R828 crore through stake sales, in MMTC and Hindustan Copper.
The government feels that buyback of government shares by Coal India may be a more palatable option for the workers’ unions as it does not involve any transfer of shares to outsiders. Declaration of special dividend may, however, be contested at the board as the twin proposals could substantially reduce company the cash reserves and hit its investment plans.
The government has already warned cash-rich PSUs not keep the money idle and plan investments or else face a direction to declare special dividends.
In May this year, the Prime Minister’s Office also met the heads of all major PSUs and at the meeting a capital expenditure plan target of Rs 1.41 lakh crore was finalised for the current fiscal in case of 23 companies.
The PSUs were also told that this investment would be monitored closely so that in the event of a slippage, the government could consider companies to declare special dividends or buy back their shares. This was also supported by finance minister P Chidambaram, who has instituted a quarterly monitoring mechanism. The cash reserves of 25 rich PSUs are estimated to be in the region of Rs 2.5 lakh crore.