Govt Looks to Raise Rs 6,000 cr from Coal In­dia Share Buy­back


Resource Digest - - CONTENT -

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.

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