PSU buybacks to bridge divestment revenue shortfall

TO bridge the shortfall in revenues from disinvestments, the government will initiate buybacks in three unlisted central public sector undertakings, sources said, reports Prasanta Sahu in New Delhi. The three, including Hindustan Aeronautics (HAL), will buy back shares worth about R4,500 crore this week, they added. While HAL will buy back

R4,000 crore worth of shares, Bharat Dynamics will buy back R300- 400 crore worth of shares while

R100- 140 crore will be bought back by by India Renewable Energy Development Agency, a senior government official told FE.

HAL’s cash reserves stood at R16,300 crore while it was R1,100 crore for Bharat Dynamics as on March 31, 2015. India Renewable Energy Development Agency had a surplus cash of R1,540 crore at the end of September 2015.

With these buybacks, the Centre’s disinvestment revenue will amount to about R24,000 crore, or about R1,300 crore short of the revised target of

R25,312 crore for FY16. So far in the current fiscal, the Centre has sold minority stakes in seven companies including NTPC, Indian Oil Corporation and Power Finance Corporation, to raise R19,514 crore.

Officials said that the disinvestment revenue shortfall would be more than made up by higher dividends announced by some cash-rich PSUs such as Coal India and NMDC.

On March 5, Coal India announced an interim dividend of ` 27.40 per share for FY16, fetching the Centre about ` 17,300 crore.

In January, the government had asked a number of cash-rich companies to consider the buyback option or pay higher dividends to help it tide over a shortage of revenues. The government retained its spending commitments even after the disinvestment target was slashed by 63% to `25,300 crore over the budget estimate of ` 69,500 crore for the current fiscal. Many planned stake sales could not take off due to delays and volatile market conditions.

An official said the Centre prefers to tap the idle cash reserves of companies like Coal India, rather than reduce its stake in these companies through buybacks. However, it seems to have preferred to undertake buybacks in unlisted firms as valuations are unlikely to be questioned. “It (buyback in unlisted PSUs) is much simpler and less complicated than a buyback by a listed company,” said Prithvi Haldea, chairman of Prime Database. Haldea, however, observed that this was not the most efficient way to raise funds, adding that public offers were a better option.

A proposal to divest a 10% stake in HAL through an IPO has been pending since 2011. Currently, there are about 169 unlisted central PSUs. Of the ` 56,500 crore target set for next fiscal, ` 36,000 crore is estimated to come from minority stake sales in PSUs and the remaining ` 20,500 crore from strategic stake sales.