The articles of association of four cash rich PSUs — NMDC, SAIL, NTPC and Coal India — have been amended to make it easy for the Centre to consider buyback as one of the alternative strategies for disinvestment in case other plans go sour like last year.

A senior Finance Ministry source told Business Line that to fetch the highest price for the Centre to cash out at least 10 per cent, the buybacks were planned.

“Early this fiscal, the Government had begun to act to avoid any failure in meeting the disinvestment target. Though pre-meditated, implementation of the plan required involvement of a number of administrative ministries of the listed PSUs,” the source added.

Way paved

“The buybacks are aimed at providing an indirect way for the majority shareholder in these companies,” said Mohan Kumar K, lead analyst with InGovern Research Services. The four State-owned companies have combined cash balances of more than Rs 1 lakh crore, he pointed out.

The Companies Act permits buyback of 10 per cent of the paid-up capital and free reserves through a shareholder-approved ordinary resolution, and 25 per cent, through a special resolution.

Norms amended

SEBI, through an amendment to the norms, in February removed irritants, particularly regarding the buy-back process timeline, public announcement norms and the allotment methodology. The amendment allowed proportionate acceptance of shares tendered.

This meant the Centre could tap this cash reservoir at will, an investment banker said.

“This is a much better alternative to divestment, which has to go through several time-consuming processes and remains vulnerable to market vagaries,” said the CMD of a manufacturing PSU.

It also bypasses questions about the “fairness” of the market valuation at which the Union Government offloading is made. The extinguishment of stock also serves the purpose of increasing public holding.

jayanta.mallick@thehindu.co.in

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