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Battling for resources in a difficult year, the Centre is eyeing more returns from its equity investments in public sector undertakings (PSUs).
From a situation of writing periodic letters to PSU boards on aspects of dividend payouts or buybacks of shares or bonus issues, the Centre has moved to framing a set of comprehensive guidelines on crucial areas of capital restructuring to spur economic growth.
Besides mandating cash-rich PSUs to fork out minimum annual dividend payouts, the Centre has also spelt out situations when buybacks need to be put through and bonus shares issued by such entities.
The guidelines, issued by the Department of Investment and Public Asset Management, are aimed at addressing resource management issues of PSUs.
The guidelines stipulate that profit-making PSUs shall fork out at least 30 per cent of their net profit or 5 per cent of their net worth, whichever is higher, as annual dividend to the Centre.
The norms follow an announcement in Budget 2016-17 for a comprehensive investment management strategy, and will be binding on all the 157 profit-making PSUs, especially bluechip ones such as Coal India Ltd, Bharat Heavy Electricals Ltd and GAIL.
The Centre will also play an active role in the investment decisions of PSUs through its nominee directors and nodal Ministries, which have been asked to ensure efficient allocation of government funds for growth and economic development.
Accordingly, PSUs with defined reserves and surplus of over five times their paid-up capital will be expected to look at issuing bonus shares. Issuing bonus shares will be mandatory if their defined reserves and surplus exceeds 10 times their paid-up capital.
Share splitting exerciseSimilarly, to make the share price of PSUs more attractive for investors, PSU boards have been asked to discuss and decide on splitting of shares. In case the market price or book value of a firm’s share exceeds 50 times its face value, it will be mandatory to split its shares, provided its existing face value is still more than ₹ 1. Further, every PSU with a net worth of at least ₹2,000 crore and cash and bank balance of over ₹1,000 crore will buy back its shares.
Others will be expected to consider the issue of buyback based on parameters of cash and bank balance, capital expenditure and business expansion in the last three years and net worth in their first board meeting after the end of the fiscal.
In 2016-17, the Centre expects dividends of ₹53,883 crore from PSUs and from other investments, against ₹44,365 crore it received last fiscal. The Internal and Extra Budgetary Resources of Public Enterprises is pegged at ₹3.98-lakh crore this fiscal against the Revised Estimate of ₹3.21-lakh crore last fiscal.
PSUs that do not comply with these guidelines will have to seek a special exemption from the Finance Ministry.
The Department of Public Enterprises will also capture these parameters in its annual survey.
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