Coal India to use Rs 3,650 cr from reserves to buy back shares

The buyback money will be spend over funding ongoing developmental projects as well as bridge the country's fiscal deficit

The Coal India board on Monday decided to buy back 1.72 per cent of its shares by using Rs 3,650 crore from its reserves of more than Rs 38,000 crore.

In a regulatory filing with the National Stock Exchange, the company said its board has approved the buyback of 108,955,223 equity shares on a proportionate basis through the tender offer route at Rs 335 a piece.

The government had said the money it would earn from the buyback would be used to fund ongoing developmental projects and bridge the country’s fiscal deficit. Previously, it had asked its subsidiaries to pass the share buyback resolution. Central Coalfields Ltd, South Eastern Coalfields Ltd, Western Coalfields Ltd, Mahanadi Coalfields Ltd and Northern Coalfields had agreed.
 

Coal India’s cash reserves are spread across its subsidiaries and the board’s consent was required to carry forward the government’s proposal. However, it would need shareholders’ approval to carry forward the plan.

According to SEBI guidelines, public shareholders have to hold 25 per cent shares in state-owned listed companies by August 2017. Currently, the President of India has 79.65 per cent stake in the company, resulting in the public having access to only 20.35 per cent stake.

While this move will help the government dilute its stake and inch closer to complying with the guideline, another public offering to further dilute its stake is likely.

The company’s decision comes at a time when it is facing the 10th National Coal Wage Agreement, which lapsed last month, expected to increase its operational expenses considerably.

Besides, with the coal fired thermal power stations continuing to be comfortable with a coal stock of 30.51 million tonne as on June this year, the demand for coal continues to remain tepid.

The trade unions have asked for a 50 per cent salary hike amidst such conditions to which Coal India has to bargain hard.

"The hike demanded by the unions is highly unlikely given the circumstances the company is facing," a senior Coal India official told Business Standard.

Nevertheless, the world's largest coal miner has worked out its plan as well as statistics to carry forward its capital expenditure plans.

"The share buyback won't hurt the company's capex plans. During our deliberations with the government, it has been worked out and our investments will progress as planned," a senior company official told this newspaper.

Back in September 2015, the Maharatna company had worked out a capex plan of Rs 57,000 crore over a period of five years to propel growth in output which was to be partly funded by its cash reserves.

The tentative capital investment projections for FY17 is Rs 8,282 crore while for FY18 and it is Rs 14,539 crore. For the FY19 cycle, Rs 14,653 crore has been planned to be spent on improving mining and evacuation activities while another Rs 13,529 crore has been earmarked for FY20 period.