Coal India to raise Rs 1050 crore via its second-ever share buyback

Coal India, on Monday, decided to buyback 44.68 million shares of the company from the market at a price of Rs. 235 apiece which will fetch the Maharatna company a targeted Rs. 1050 crore. Its cash rich subsidiaries – Mahanadi Coalfields (MCL), South Eastern Coalfields (SECL) and Northern Coalfields (NCL) – will be funding the buyback.

This offer size represents 0.72 per cent of the total number of the company’s shares which is also 9.86 per cent of the share capital and free reserves of Coal India on a standalone basis. Out of the targeted amount, the central government, which holds 72.91 per cent in Coal India, is expected to receive Rs. 765.55 crore. The record date to ascertain the eligibility of shareholders to the tender offer route issue is February 15, 2019.

A senior Coal India executive said that regulatory norms prescribe that shareholders’ approval is compulsory when the buyback size equals 10 per cent of the company’s share capital.

“We wanted to skip this approval and thus have kept 9.86 per cent which doesn’t require approval from the company’s public shareholders”, the official said.

The buyback price is higher than the scrip’s price on the BSE which has been hovering around Rs. 222-235 per share since the last 30 days.

This is the second buyback which Coal India has undertaken in the last two years when this coal monolith bought back nearly 109 million shares in 2017 at Rs 335 per share. It helped the centre receive Rs. 2638 crore.

MCL will be buying back its 0.44 million shares at a price of Rs. 8014.13 per equity share aggregating to Rs. 355 crore on a proportionate basis through a tender offer while SECL is expected to fund another Rs. 355 crore by buying back 0.49 million shares at a price of Rs.7244.32 per equity share via the same offer route of tender. The proposal from NCL stands at raising another Rs. 355 crore to buyback 0.52 shares at a price of Rs. 5845.83 per share.

However, both MCL and SECL had posted a decline in production and sales volume in January this year owing to socio-economic tensions in key mining areas and weather conditions. MCL’s production declined by 9.9 per cent at 13.23 million tonne (mt) while sales dipped by 10.1 per cent at 11.58 mt. SECL’s production went south by 4.4 per cent at 13.58 mt while sales stood at 12.77 mt which is a 9.4 per cent decline when compared on a year-on-year basis. However, led by higher coal demand in north India, NCL posted a 5.7 per cent increase in production at 9.22 mt with sales volume increasing by 2.2 per cent at 8.86 mt.

An estimated Rs. 20-25 crore will be spent as regulatory expenses, brokerage, GST, stamp duty and other expenses to carry out the buyback.

In December 2018, Coal India had approved a payout of Rs 7.25 per share of the face value of Rs 10 each as interim dividend which cost the company Rs. 45 billion of which the government received an estimated Rs. 32.87 billion. Earlier in that same month, the centre sold 2.21 per cent stake to Central Public Sector Enterprise Exchange Traded Fund’s (CPSE ETF) mutual fund scheme at a discounted rate, which further helped it to raise Rs 32 billion.

Previously in 2018, during October-November, against a total offer to sell a nine per cent stake, which included an oversubscription option, the government managed to sell 3.19 per cent of its stake. It was followed by another tranche of sale, when 0.45 per cent of the stakes were offered to employees. However, that sale also fetched a lukewarm response as not even one per cent of the offered shares were finally bought by the company staff.

During 2017-18, the government had received over Rs 80 billion at the rate of Rs 16.50 per share as dividend from the world’s largest coal miner.

Pointers 

• Coal India to buyback 44.68 million shares
• Buyback size fixed at Rs. 1050 crore
• Buyback size represents 9.86 per cent of its share capital
• Coal India keeps buyback size less than 10 per cent of its share capital to skip approval from public shareholders
• Centre expected to receive Rs. 765.55 crore