 "Budget 2016: With public sector push, Jaitley hopes to boost private investment")
The Centre has released a new set of guidelines on capital restructuring of state-owned companies, which will make them more accountable on matters of dividends, buybacks and bonuses, and will help the government meet its non-tax revenue and capital receipts target for the year.
The guidelines, applicable from April 1, make it mandatory for all central public sector enterprises (CPSEs) to pay a minimum annual dividend of 30 per cent of profit after tax, or five per cent of net worth, whichever is higher. If they cannot, they will have to explain to the ministry concerned if they are constrained by capacity to borrow or if the free cash is being put into capital spending and infrastructure.
The guidelines also state that every CPSE with a net worth of at least Rs 2,000 crore, and cash and bank balance of Rs 1,000 crore will exercise the option of buyback of shares.
“It has been observed that CPSEs are not looking into merit-based capital restructuring, including the option of buyback of shares, if they do not have plans to deploy surplus funds optimally for business purposes,” the guidelines state.
There are strict timelines as well. If some companies are exempt from paying the full dividend, then they, through their respective ministries, have to submit their reports of exemption to secretary, department of investment and public asset management (Dipam), and secretary, economic affairs, before the end of the second quarter of a financial year.
Every CPSE has to consider the various parameters to buy back shares, in the first board meeting after the closure of a financial year.
“You, as a PSU, either spend more on formation of assets, or borrow more, or you maximise your investors’ interests by issuing dividends and buybacks,” said a government official.
The consolidated guidelines have been issued by Dipam. In earlier years, these were issued by the department of public enterprises and department of economic affairs.
The government is looking to earn dividends from CPSEs of Rs 53,883 crore in 2016-17, about 20 per cent higher than 2015-16 revised estimates. The total disinvestment target for the year is Rs 56,500 crore, of which Rs 36,000 crore is expected from minority stake sales and buybacks, with the rest from strategic sales. The CPSEs, which have already announced share buybacks include NMDC and MOIL, from which the Centre expects to get Rs 6,500 crore combined, and Coal India, from which the Centre hopes to garner Rs 6,000 crore.
For bonuses, every CPSE with defined reserves and surplus of 10 times or more of its paid-up equity share capital will have to issue bonus shares to shareholders.
