The weakness in stock prices of public sector undertakings (PSUs) may mean the latter buying back their own scrips from shareholders, including the promoter (government) so that the Centre can raise money. The stock prices of some have come off 20 to 60 per cent. The top 50 PSUs have over Rs 2 lakh crore in cash. This puts them in a position to spend money on share buybacks.
Since the buyback process is more time-consuming, the Centre is planning the ground work in advance. “We could see buyback programmes in 2016-17. This would help the government meet two objectives. It would support the depressed stock prices and would help the government sell its holding at a price higher than the current market price,” said a source. Companies including Coal India, ONGC (Oil and Natural Gas Corporation), NMDC, Oil India, and Bhel (Bharat Heavy Electricals Limited) will most likely go for buybacks given the high cash on their balance sheet. As the stock prices of these companies have come off sharply from one-year highs, the government isn’t keen on selling stakes at current market prices, the source added.
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Shares of capital goods firm Bhel are down 60 per cent from their one-year high in July last year. Oil India stock price is down 40 per cent in the past one year.
According to market experts, buyback through the tender route will enable the promoter (government) to participate and allow the company to set the buyback price far higher than the current market price. Deven Choksey, chief executive officer (CEO) of KR Choksey Securities, says a buyback would send a positive signal to the market.
“Typically, buybacks happen at a premium to the market price. This results in a boost to investor confidence,” he said. So far this financial year, the government has raised Rs 19,300 crore by selling stakes in PSUs. The Centre is likely to fall short of its divestment target this financial year, like it did in the past five years.
Finance Minister Arun Jaitley in his Budget speech had said the the government would “adopt a comprehensive approach for efficient management of government investment in PSUs by addressing issues such as capital restructuring, dividend, bonus shares, etc.”
Rajeev Thakkar, chief investment officer of Parag Parikh Financial Advisory Services Mutual Fund, says the government should be careful in selecting the companies for buybacks. “PSUs need cash over a period of time for their capital-expenditure needs. Taking out cash through buybacks from the PSU and sending it to the government may constrain the company,” he said.
According to sources, the government is considering buybacks in unlisted PSUs as well. Experts believe this could be to rejig the capital structure before they go public.
The department of divestment is said to have asked the ministry of corporate affairs (MCA) to clarify some rules on buyback of unlisted firms.
Earlier, the MCA had changed the rules to allow private firms to do buybacks on the basis of unaudited accounts for up to six months through a limited review by auditors. For listed firms, buybacks are decided on the basis of audited accounts not older than six months from the date of offer document.