Covid-19 crisis: Govt wants PSUs to ramp up dividends, share buybacks

With Covid-19 set to hit FY21 revenue mop-up, Centre looks for options

The central government is assessing the cash position of state-owned companies and may ask them to ramp up dividend payouts and share buybacks as much as possible, people in the know told Business Standard.
 

This comes at a time when the Covid-19 crisis is expected to derail the government’s revenue maths for 2020-21, hitting the mop-up from sources such as taxes and divestment.

The government is of the view that since economic activity is low, central public sector enterprises (CPSEs) are not spending on capital expenditure as much as they would have anticipated, and hence are sitting on cash reserves, which can be used to pay dividends and buy back shares, sources said.
 

“We are talking with CPSEs to assess their financial status, the amount of cash reserves they have, and the state of their balance sheets,” said a senior government official.

In 2019-20, three state-owned companies bought back shares worth Rs 821.8 crore from the Centre, which was 1.6 per cent of the divestment proceeds of Rs 50,299 crore. For the same year, the revised estimate of dividends from non-financial PSUs was Rs 48,256 crore, compared with the Budget estimate of Rs 57,487 crore.
 

The amount the Centre garners from share buybacks by PSUs started being counted as part of the divestment proceeds from 2015-16. In absolute terms, the highest-ever proceeds were in 2016-17, when PSUs like Coal India, NLC India, NHPC, and NMDC bought back shares held by the Centre worth Rs 18,963.5 crore, which was nearly 40 per cent of that year’s divestment proceeds of Rs 47,743 crore.

Given that the severe global economic slowdown has led to concerns about how much the Department of Investment and Public Asset Management (Dipam) will be able to do with its big privatisation plans this year, including of Air India, Bharat Petroleum, and Shipping Corporation of India, share buybacks could again form a major chunk of whatever the government manages to get through divestment in 2020-21.   

       

“Economic activity is low, so PSUs have had to recalibrate their capex plans. We have told them to assess how much they want to keep aside for contingency, how much can be used up this year, and how much can be given to the government. They are doing that exercise,” said the official, adding that while proceeds from dividends and buybacks would come in the second half, this work had started now. 
        

“The mentality in the public sector is that they will be comfortable if they have a lot of cash with them, unlike the private sector, which can deploy the cash for expansion and capex much quicker. PSUs want to keep cash even for capex needs for the next two-three years,” said a second official.
 

Finance Minister Nirmala Sitharaman and her predecessors, including the late Arun Jaitley and P Chidambaram, have maintained the policy of advising non-financial state-owned companies that if they are not utilising their cash reserves for capex needs, they should give it to the Centre through dividends or share buybacks.

“The policy is already in place. We check their balance sheets and see how much free cash they have and what are their declared capex requirements. We always tell them not to keep cash,” the second official said. However, the person also warned that because of the slowdown, PSUs’ cash position might also have depleted.
 

For FY21, Dipam faces its highest-ever divestment target of Rs 2.1 trillion. Meanwhile, dividends from non-financial PSUs have been budgeted at Rs 65,747 crore.