CIL to again fund Centre via share buyback

Coal India would again be generating cash for the central government, its principal shareholder, via the capital buyback guidelines issued last year.

In October last year, the monolith had extinguished 1.72 per cent of its shares after a buyback, estimated to have generated cash of Rs 2,500 crore for the Centre. The total cash given to the shareholders was Rs 3,650 crore. Now, to again raise money for its shareholders via interim dividend, Coal India is banking on its subsidiaries. “The buyback process is happening as per the Dipam (department of investment and public asset management) guidelines,” a Coal India executive told this newspaper.

The guidelines make it mandatory for every public sector undertaking having a net worth of at least Rs 2,000 crore and a cash and bank balance of Rs 1,000 crore to buy back a maximum 25 per cent of its equity shares. 

Thus, five of Coal India’s seven mining subsidiary companies have to compulsorily buy back their shares and release idle capital. Eastern Coalfields, which recently came out of the ambit of the Board for Industrial and Financial Reconstruction, and North Eastern Coalfields, whose net worth is Rs 238.5 crore, will be out of this. Beside, the guidelines recommend payment of reasonable dividend at regular intervals. Announcement of an interim dividend coming on March 15 is in line with this. The guidelines state that instead of paying dividends based on the net profit,  state-owned companies have to consider net worth. A profitable public sector unit has to pay either 30 per cent of the net profit or five per cent of its net worth as dividend, whichever is higher.

“Based on the directives, the buyback is being reworked,” said the official quoted earlier.

The Centre holds 79.11 per cent in Coal India and will again be the largest beneficiary from this exercise. The total amount, till now, which can be transferred to Coal India’s account by its subsidiaries is Rs 4,061.4 crore. If two other subsidiaries, Western Coalfields Ltd (WCL) and Central Coalfields Ltd (CCL) also decide to extinguish four to five per cent of equity shares, the total amount will exceed Rs 6,000 crore. “WCL and CCL will take a call on this on the 4th of this month, after which we will decide on the final interim dividend,” a second Coal India official said.

Northern Coalfields, a subsidiary company, will be buying back 4.3 per cent, which will result in the net worth declining by Rs 1,244 crore from the existing Rs 4,195 crore. The net worth of Mahanadi Coalfields will go down by Rs 1,617 crore from the current Rs 4,319 crore, as it has decided to buy back 2.97 per cent of its shares. Similarly, South Eastern Coalfields, the largest subsidiary, will part with Rs 1,200 crore from its capital reserves. This will take down its net worth to Rs 3,900.6 crore, as it will buy back 4.18 per cent of its shares. To fund the dividend payout, Coal India had in June last year initiated a similar share extinguishing programme, where five of its subsidiaries had agreed. However, the process was abandoned midway and Coal India resorted to extinguish 1.72 per cent of its own shares. 

In January this year, the Centre further divested its stake in Coal India by 0.67 percentage points, placing about 41 million shares in the Central Public Sector Enterprise Exchange Traded Fund.