PSUs in rush to meet dividend deadline

IOC, BPCL, HPCL get Sebi leeway to make immediate payments; Coal India to follow

To shore up revenues, the government is hastening public sector undertakings (PSUs) to pay dividends before this financial year (2016-17, FY17) ends. 

On Thursday, the oil-marketing companies — Indian Oil, Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) — in hurried board meetings declared their second interim dividend. 

Coal India also announced its board would meet again on Sunday to declare another interim dividend, which would be paid before March 31. This will be on top of the hefty dividend of Rs 18.75 per share paid by the company earlier this month. 

Nudged by the government, the Anil Agarwal-led Hindustan Zinc on Wednesday had announced a record dividend payout of Rs 27.5 a share. The Centre, which has a residual 29.54 per cent stake in the company, will pocket Rs 3,400 crore as a result.

The four PSUs had to obtain markets regulator Securities and Exchange Board of India’s (Sebi’s) relaxation on the mandatory seven-day time gap between the declaration of dividend and payout to ensure the dividend reached the government kitty before the end of FY17. 

“The regulations around giving a seven-day notice for corporate actions such as dividend payment or bonus issue are investor safeguards. The time is provided for investors to decide if they want to continue as shareholders or exit. However, the relaxation could have been sought as the PSUs are under pressure to declare dividends to help the government increase this financial year’s revenues,” said Rishabh Mastaram, founder, RGM Legal. 

Milking PSUs to achieve the government’s revenue targets is not new. In the past three years, state-owned entities have been increasing dividend payouts.  

Experts said high dividend payouts, without meaningful growth in profitability had led to a depletion of cash reserves at PSUs. This will impair their position to pay high dividends in  future, they add.

In the last financial year, dividend payouts by PSUs had gone up 21 per cent despite decline in profits. Also, the cash balance at non-bank PSUs was down 20 per cent, in the first six months (April to September) of this financial year. 

However, the Centre’s hands, too, seem to be tied. 

“The projected fiscal deficit for 2016-17 has been overshot in January itself. This means, the government either has to drastically cut expenditure or raise revenues substantially. Given the subdued economic growth, the government cannot scale back capital spending. Besides, the Seventh Pay Commission recommendations are weighing on the revenue expenditure. Meanwhile, there is likely to be a shortfall in projected direct tax collections. So, it is left with some options to increase its revenues from non-taxes sides such as dividend from PSUs, disinvestment and cutting subsidies,” said an economist with a foreign bank.

Besides dividend, the government’s resource mobilisation through the stock market route has been high. So far in this financial year, the Centre had raised Rs 40,000 crore by way of disinvestment. This was the highest ever. 

The bulk of the proceeds, however, has come through share buybacks — where the PSUs have bought back shares held by the government by paying cash available on the balance sheet.