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Under pressure because of a yawning fiscal deficit and slowing tax collections, the Finance Ministry has tweaked the share buyback plan for state-owned enterprises.
Faced with strong objections from various ministries, as well as public sector undertakings (PSUs) under their control, the Finance Ministry now proposes to authorise the PSUs to decide on buying back their shares. This is part of the revised note for consideration of the Cabinet Committee on Economic Affairs.
The earlier buyback plan had stalled, as several ministries and PSUs had expressed strong reservations about depleting their cash reserves in uncertain times.
A person familiar with the development told Business Line , “Initially, the plan was that the Department of Disinvestment will be empowered to decide about the buy-back of various PSU shares and then ask the PSU concerned to complete the regulatory formalities. But now it is proposed that the Department be enabled to tender or offer shares if a PSU decides to buy-back its own shares using surplus.”
Though the CCEA could not take up the revised proposal at its meeting on Wednesday, it is expected to be considered soon. This proposal is being brought in to help the Government meet the shortfall in its Budget disinvestment target.
The change is significant as it will help sustain investor interest in the company. It will also protect the long-term ability of the PSU to raise funds from the market. Such a move will also provide a level-playing field to central PSUs vis-à-vis private companies, the source added.
It is believed that the Finance Ministry has changed the terms after various ministries, especially Power, Steel, Coal and Mines, raised objections. These ministries felt that buy-back using surplus may hit the expansion plans of the PSUs.
The Government had set a target of Rs 40,000 crore to be raised through disinvestment, but till December, it has been able to raise just Rs 1,144.55 crore through sale of minority stake. With the stock market down, the Finance Ministry is looking for options other than an IPO or follow-on public offer to achieve the disinvestment target.
In terms of institutional placement, it is said that the Department of Disinvestment may sell the Government's shareholding in a PSU to the Life Insurance Corporation, public sector banks and institutions along with special purpose vehicles wholly owned by the Government in off-market deals if they approach the Department for the same.
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