M A I N   N E W S

Cash-rich PSUs can buy back shares 
Cabinet Decisions: Govt makes last-ditch bid to meet 
Rs 40,000-cr divestment target
Sanjeev Sharma/TNS

New Delhi, March 1
The government is making last-ditch efforts to meet its Rs 40,000 crore divestment target in this fiscal year. The Cabinet Committee on Economic Affairs (CCEA) today allowed cash-rich public sector companies to buy back government’s equity.

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Another important event of the divestment calendar was the ONGC auction, which turned out to be a tame affair with bids coming in for two-thirds of the 42 crore shares on offer, mopping up around Rs 8,500 crore. The bids came in for over 29 crore shares, around 68% of the target of mopping Rs 12,000 crore at the floor price of Rs 290.

It is evident that the government is going in for fast-track methods of auction and share buyback as it has not been able to garner significant amounts through divestment this year. Fund raising through these options can be done much faster than a follow-on offer route to the general public.

While the government took the line that the buyback is an enabling provision for companies and their boards will take a final decision, it is almost a given that the government, being the majority owner, can get the PSUs to follow these norms.

The Department of Disinvestment had identified about two dozen cash-rich PSUs with a cash balance of nearly Rs 2 lakh crore. The buyback proposal was mooted in January, but deferred as several ministries such as heavy industries, petroleum and coal and the companies themselves did not like the idea.

They argued that the cash-surplus with PSUs were required for expansion projects and many of them have huge debt on their balance sheets. The cash-rich companies identified by the government for stake sale include SAIL, NMDC, NTPC, Coal India, Oil India, MMTC, Neyveli Lignite, NHPC, BHEL and GAIL.

The CCEA also allowed cash-rich companies to invest in other PSUs through crossholdings. This is a remake of the idea tried in 1998 when three oil companies — ONGC, IOC and GAIL — had invested through crossholdings. According to the markets, this had not really worked.

With the fiscal deficit expected to be well over the projected 4.6 per cent, the government is scrambling to raise funds within this fiscal year to bring down the deficit as much as possible. The government so far has been able to raise only Rs 1,145 crore from Power Finance Corporation and its sale of stake in ONGC through the auction route may fetch another Rs 8,500 crore.