State-owned Oil and Natural Gas Corp's (ONGC) Rs 4,022 crore share buyback programme will open on January 29 and close on February 11, the company said in its offer letter to shareholders.
ONGC's board had on December 20 approved buyback of 25.29 crore shares for Rs 159 apiece as part of the government plan to get cash-rich PSUs to part with their surplus.
The government, which holds 65.64 per cent stake in the company, stands to gain about Rs 2,640 crore from tendering some of its shares in the buyback programme.
"The funds for the buyback will be met out of internally generated cash resources of the company," it said.
ONGC said buyback is the acquisition by a company of its own shares. A buyback is an efficient form of returning surplus cash to the members holding equity shares of the company.
After considering the mutual benefits to the company and the equity shareholders, "the board decided to recommend buyback of not exceeding 25.29 crore equity shares representing 1.97 per cent of the total number of equity shares in the paid-up share capital of the company at a price of Rs 159 per share for an aggregate consideration of not exceeding Rs 4,022 crore," it said.
ONGC said the buyback is not likely to cause any material impact on the profitability/earnings of the company and will not in any manner impair its ability to pursue growth opportunities or meet its cash requirements for business operations.
"The buyback is expected to contribute to the overall enhancement of shareholder value and result in an increase in the return on equity of the company," the letter said.
The buyback follows government pushing cash-rich PSUs to use their funds to buy back shares or pay a higher dividend. The government is looking to bridge budgetary deficit through higher receipts of dividend as well as selling its shares in PSUs in the buyback programmes.
ONGC will, however, not pay an interim dividend for now as it is left with almost no surplus after accounting for its capital expenditure, sources with knowledge of the development said.
Last month, state-owned Indian Oil Corp (IOC) said it will buy back 29.76 crore shares for about Rs 4,435 crore and spend another Rs 6,556 crore on paying an interim dividend to shareholders.
The board of IOC, the country's largest oil firm, approved buyback of up to 29.76 crore equity shares, or 3.06 per cent, at Rs 149 per share.
Besides ONGC and IOC, at least half a dozen other central PSUs have disclosed share buyback programmes. Prominent among these are NHPC, NMDC, Coal India, Oil India, BHEL, NALCO, NLC, Cochin Shipyard, and KIOCL.
The government is expected to participate in each of the share buyback programme of these PSUs with anticipation of netting over Rs 5,000 crore.
IOC had also declared an interim dividend of 67.5 per cent or Rs 6.75 per share for fiscal 2018-19. The total dividend payout, excluding tax, would be Rs 6,556 crore, of which the government will get Rs 3,544 crore plus the dividend distribution tax.
Oil India too has announced a buyback of 5.04 crore of its shares for a little over Rs 1,085 crore.
Department of Investment and Public Asset Management (DIPAM), which is mandated to raise Rs 80,000 crore through PSU stake sale in current fiscal, had prodded all cash-rich PSUs to go for share buybacks.
PSUs having a net worth of at least Rs 2,000 crore and a cash balance of more than Rs 1,000 crore have to mandatorily go in for share buyback.
Of the Rs 80,000 crore disinvestment target, the government has so far raised just over Rs 15,000 crore through minority stake sale in PSUs.