Govt Looks to Raise Rs 6,000 cr from Coal India Share Buyback
BUT CENTRE WON’T BE ABLE TO USE IT TO COVER FY16 DIVESTMENT PROCEEDS’ SHORTFALL
The government is looking to raise about ` 6,000 crore by getting Coal India Ltd to buy back a fourth of its paid-up share capital at a premium but the state-owned company may only be able to comply with this by August, which means the Centre won't be able to use this money to cover the shortfall from disinvestment proceeds for FY16.
Following the buyback, the government's stake down is likely to drop to 76% from 79.65%, said officials who didn't want to be named. SBI Caps will advise on the buyback. The buyback will be followed by an additional divestment that would lower the government's stake below 75%.The Securities and Exchange Board of India (Sebi) has stipulated that the public should hold at least 25% of state-owned listed companies by August 2017.
The Centre is unlikely to go ahead with its plan of an additional 10% stake divestment in the company this fiscal because of stock market volatility. This would mean that, while it will get a dividend for FY16 from CIL, the government won't get one in FY17 as the company will need to pay for the buyback, said an analyst who didn't want to be named.
As part of the buyback exercise, CIL has been asked to direct its wholly owned subsidiaries to buy back their shares from the parent. CIL has eight subsidiaries, all of which are now profitable. However, Eastern Coalfields and Bharat Coking Coal have just emerged from a recovery programme while consultancy and exploration arm Central Mine Planning & Design Institute is not financially strong. These three companies will likely be exempted from the plan, said the persons cited above.
Mahanadi Coalfields, Northern Coalfields, and South Eastern Coalfields will buy back 25% of their shares as per the plan. The percentage of stock to be bought back by Central Coalfields and Western Coalfields will depend on the money they have at the end of March, since they aren't financially as robust.
Since none of the subsidiaries are listed, the buyback price will depend on their cash reserve position. CIL will adopt one of the accepted formulae to arrive at the price, said a government official, who also explained why the exercise will take time.
“In order to go ahead with a 25% buyback, the proposal needs to be passed at a board meeting first,“the person said.
“The next board meeting is scheduled on February 11 and it may discussed. However, in order to arrive at the price at which Coal India will buy back its shares, the company has to first get its accounts audited, which will only be completed in May 2016. This has to be followed by Sebi approval that is likely to take anything between seven to 15 working days,“he added.