Coal India to fast-track share buyback for funds

Move follows opposition by unions to 5% stake sale in the company

With the coal ministry proposing to put the contentious issue of divestment of stake in Coal India Ltd (CIL) on the back burner, the state-owned miner is likely to fast-track a share buyback process to raise about Rs 10,000 crore.

In an interview with Business Standard, CIL Chairman and Managing Director S Narsing Rao said, “Technically, the share buyback is possible, as the articles of association of the company were amended at last year’s annual general meeting. Accordingly, the matter has been discussed in the board informally. It is completely wrong to say independent directors of the company are opposed to the idea.”

According to sources privy to the development, CIL has been asked to fast-track the share buyback process, as opposition by unions, as well as a call for a strike, have jeopardised the government’s plan to sell five per cent stake in CIL. Opposing the sale, five CIL trade unions are set go on a three-day strike from September 23.

“In the current market environment, when Coal India is trading at Rs 280, against Rs 380 in September last year, it does not make sense to go ahead with a stake sale. The government wants both stake sale and share buyback, as the disinvestment proposal has already been halved to five per cent. But at this time, the buyback plan appears to be the only realistic option,” said an official.

On Friday, the CIL stock closed at Rs 293.2 on the BSE, 2.91 per cent higher than the previous close.

The coal ministry has already written to the Department of Disinvestment, proposing the stake-sale process be postponed till the environment is suitable for the move.

CIL was listed on the bourses in 2010, after the government raised Rs 15,199 crore by selling 10 per cent stake through what was the country’s biggest initial public offering. Currently, the government holds 90 per cent stake in CIL.

Under the share buyback route, the government can raise funds by selling a part of its equity holding in the company to the public sector enterprise concerned. The government makes the company use its cash reserves to buy back promoter (government) shares. In the process, funds are transferred from the company to the promoter. CIL has a huge cash reserve of Rs 62,000 crore, the highest among all public sector undertakings.

“If a decision is taken in favour of share buyback, from that time, it would take four-five months to complete the process,” Rao said. The issue isn’t part of the agenda for the CIL board meeting scheduled for September 18, on the sidelines of the company’s annual general meeting, but is likely to be taken up on a later date.