Cabinet allows PSUs to buy back shares

Hard pressed for funds, the government today approved the proposal for expediting disinvestment through the buyback route under which blue chip state-owned companies will buy its stake.

The decision to allow Public Sector Undertakings (PSUs) to buyback shares was taken by the Cabinet headed by Prime Minister Manmohan Singh, sources said.

The proposal will allow the government, which has not been able to reach anywhere near the disinvestment target of Rs 40,000 crore in FY12, to raise funds by selling its stake in the PSU to the same undertaking.

The government till date it has been able to raise only Rs 1,145 crore from PFC. Its sale of stake in ONGC through the auction route may fetch another Rs 12,000-13,000 crore.

Market regulator Securities and Exchange Board of India (Sebi) had earlier relaxed norms for buyback of shares and dilution of equity by companies.

The new norms would help the companies to complete the process of selling shares within days against the normal process which can take months.

Besides reducing the timeline for completion of buyback of shares by companies to 34-44 days, Sebi had also introduced a new mechanism called Institutional Placement Programme (IPP) that would allow promoters to sell up to 10% of their capital through an auction.

When asked about the decision, Finance Minister Pranab Mukherjee said, "I can't say anything about the Cabinet decision which has been taken. There is due procedure and it will be announced in due course."

In order to fast track the disinvestment programme, the Department of Disinvestment (DoD) had already sought opinion of the ministries concerned for buyback of shares and has prepared a list of cash-rich PSUs.

Several ministries like oil, power, steel, coal and mines, however, are believed to have opposed the proposal saying it could impact the expansion plans of the PSUs.

Funds raised through the buyback of shares would to some extent help the government in bridging the fiscal deficit which during the first 10 months has exceeded the annual target.

According to Govinda Rao, a member of the Prime Minister's Economic Advisory Council (PMEAC), the fiscal deficit could exceed the budget target of 4.6% of the Gross Domestic Product (GDP) by one percentage point.

Since the beginning of the disinvestment programme, the government has divested stake in PSUs either through initial public offers (IPOs) or follow on public offers (FPOs).