Modi govt to ask Coal India, NTPC among others for cash via buybacks

India is planning to ask some state-owned companies to repurchase shares to help the government shore up its finances amid the coronavirus pandemic, according to a person with knowledge of the matter.

Coal India Ltd., NTPC Ltd., NMDC Ltd., MOIL Ltd., KIOCL Ltd, and Engineers India Ltd. are among the eight companies that might be asked to buy back shares this year, the person said, asking not to be identified as the information is not public. The government, being the largest shareholder in these companies, will benefit from the transactions by tendering the equity it holds in return for cash.

The strategy will help Prime Minister Narendra Modi’s administration access part of the more than 400 billion rupees ($5.5 billion) of cash hoard with the companies as of March 31, at a time it has struggled to meet its target of raising money from tax and sale of state assets. The government has raised less than 3% of its 2.1 trillion-rupee target selling state assets since April 1, while tax revenues have also slowed as the virus ravages the economy.

That’s put the fiscal gap on course to balloon to more than double the targeted 3.5% of gross domestic product.

A spokesman for the Finance Ministry couldn’t be immediately reached for a comment.

The ministry is reworking its strategy according to the changed situation, and encouraging buybacks wherever companies have extra cash available after meeting their capital expenditure requirements, Disinvestment Secretary Tuhin Kanta Pandey said in an interview last week.

The government has been pushing state-owned companies to increase their capital expenditure as it looks to revive an economy seen contracting about 10% in the year to March 2021.

Capital expenditure by state companies is a critical driver of economic growth and needs to be scaled up for this year as well as next, a statement from the Press Information Bureau quoted Finance Minister Nirmala Sitharaman as saying after a meeting with public sector companies on Monday.