Modi govt lines up PSUs for share buyback as disinvestment falters
The buyback is being looked at aggressively to mobilise disinvestment receipts as the government’s strategic sale plan has suffered this year due to disruptions created by the COVID-19 pandemic
The government proposes to mobilise disinvestment resources by getting financially stronger and cash-rich central public sector enterprises (CPSEs) to buyback its shares.
Sources in the government said that the disinvestment department is finalising a list of close to 10 bluechip CPSEs including NTPC, Coal India, and NMDC that will be asked to buyback small portions of government equity ranging between 5-10 per cent this year.
The buyback is being looked at aggressively to mobilise disinvestment receipts as the government's strategic sale plan has suffered this year due to disruptions created by the Covid-19 pandemic.
The strategic sale of oil refiner Bharat Petroleum Corporation Ltd (BPCL) has already been postponed four times, while privatisation scheme of Air India is still to get a good investor response.
Even the proposed share sale in certain PSUs has not taken off resulting in disinvestment proceeds reaching just over Rs 5,695.63 crore so far against a target of Rs 2.01 lakh crore. The government has divested its shares in only two CPSEs - Hindustan Aeronautics Limited (HAL) and Bharat Dynamics Ltd (BDL).
According to Department of Investment and Public Asset Management (DIPAM) guidelines, CPSEs with a net worth of at least Rs 2,000 crore and cash balance of more than Rs 1,000 crore shall exercise the option to buyback their shares.
Under these guidelines, a whole host of companies such as Power Finance Corporation, RITES Ltd, Power Grid Corp of India Ltd, Container Corp of India Ltd, IRCON International Ltd and Rail Vikas Nigam Ltd qualify. Apart from these, the bluechips NTPC, CIL, NMDC and oil sector PSUs also qualify to go in for buyback.
Last year, Security Printing & Minting Corporation of India Ltd (SPMCIL), MOIL and Mazagon Dock Shipbuilders Ltd (MDL) bought back government shares.
Typically, the government prefers buybacks because the transaction cost is low and it is not a time-consuming process compared to the alternatives.
Buybacks also help improve financial parameters of PSUs, which in turn improves investors' interest enabling companies to tap the equities market for funds when needed.