Centre asks eight state-run firms to consider buybacks

NEW DELHI: The Centre has asked at least eight state-run companies to consider share buybacks in the fiscal year that runs through March 2021, two government officials said, as the government scours for ways of raising funds to rein in its fiscal deficit.

The firms asked include miner Coal India, power utility NTPC, minerals producer NMDC and Engineers India, said a source, who sought anonymity as the discussions are private.

“Buyback is an important tool in our strategy and it helps in building market price,” added the second official, who also spoke on condition of anonymity.

India is unlikely to be anywhere near its fiscal deficit target of 3.5% of GDP for 2020/21 as coronavirus curbs hit tax collections and delayed efforts to privatise energy firm Bharat Petroleum Corp and flag carrier Air India. In February, the government had set itself a target of raising over $27 bn from privatisations and sale of minority stakes in state-owned companies this fiscal year.

But, some firms, particularly in the oil sector, may not be able to do buybacks, the sources warned, as the government’s stake is just sufficient to ensure its position as a majority holder. “The government stake in these firms is about 51% and there is a competing claim on their cash in the form of huge capex commitment and dividend payments,” the second source said.

But for those with sufficient funds and capex below target for this fiscal year, the Centre could seek approval from the cabinet to prune its stake to less than 51% in individual firms without giving up control, the official said.

The firms asked include miner Coal India, power utility NTPC, minerals producer NMDC and Engineers India… Buyback is a vital tool in our strategy and it helps in building market price