Coal India gains 2% on share buyback proposal

The stock of state-owned Coal India Ltd (CIL) on Friday rose more than two per cent on anticipation that the company will announce a share buyback. The coal producer is seeking shareholders’ nod for facilitating buyback by amending its articles of association.

The resolution for the amendment will be placed before shareholders for approval at the upcoming annual general meeting on September 18. Shares of the company on Friday gained 2.26 per cent to Rs 366.9 on BSE, after touching a high of Rs 371.6, when the benchmark Sensex shed 0.38 per cent to close at 17,783.21 points.

“Resolved that pursuant to section 31 and other applicable provisions, if any, of the Companies Act 1956, the Articles of Association of the company be altered to include clause 18A after clause 18 to provide for buyback of shares,” says the notice for the resolution in the annual report which will be placed before the shareholders at the annual general meeting.

Market buzz was that the company’s buyback price would be close to Rs 400, said experts. If the buyback is announced at that price, it will be eight per cent higher than the current market price.

However, the company management said it was just an enabling resolution and doesn’t imply the buyback would be done immediately. “There is no proposal of buyback of shares as of now,” S Narsing Rao, chairman of CIL, told Business Standard.

CIL’s decision of enabling itself for buyback of shares is understood to be prompted by a cabinet note sent to the coal ministry on the same. Subsequently, the CIL board approved the proposed amendment of its articles of association. The Centre has been mulling share buyback of cash-rich public sector enterprises like CIL as an alternative means of meeting its disinvestment target, but poor market conditions prevented the Centre from selling any public share. CIL has cash equivalent of about Rs 50,000 crore as of June 30.

Any move in this direction in the near future may help the government achieve its disinvestment target of Rs 30,000 crore for 2012-13. Incidentally, the government is yet to set the ball rolling for disinvestment, with five months left of the current fiscal.

Under the share buyback route, the government can raise money by selling part of its equity holding in the company to the public sector enterprise itself. However, for a listed public sector entity like CIL, the buyback of shares will be open to all shareholders of the company. Buyback, if it happens, will be through the tender route if the promoters want to sell their shares.

The market regulator recently has introduced a 15 per cent quota for retail shareholders in share buyback through the tender route.