Monday, April 4, 2016

DIPAM to monitor cash utilisation by PSUs

THE newly created Department of Investment and Public Asset Management (DIPAM) has outlined detailed parameters to monitor the performance of PSUs for ensuring optimal utilisation of cash and free reserves, estimated at Rs 2.6 lakh crore, says a media report.
The government will expand its focus from disinvestment and also work for improving the financial and physical performance of the PSUs.
If PSUs couldn’t utilise their surplus cash, government would ask them to...
buy back shares using free reserves, an official was quoted as saying by a national daily.
In order to evaluate the performance of PSUs, government has evolved 10 parameters which include capacity utilisation, leveraging networth, return on investment, technology upgradation and marketing efficiency.
The motive behind the proposal is to ensure that cash does not remain idle and is utilised by other PSUs.
While the private sector companies utilise cash for acquisition or capital expenditure, the PSUs have a trend of holding on the cash and bank and hence their balance sheets needed to be looked at professionally.
To assess the cash utilisation of PSUs, the government starting this fiscal will also look at ratios like-- return on networth, dividend to networth, Profit after tax to networth.
"If the return on cash balance is not more than bank rate then there is no reason for holding huge cash... Large cash was lying in bank and government was divesting equity. Government is now looking at the point of view of return, premium to efficiency in business operation and expansion of business, including capex," the official said.
While renaming the Department of Disinvestment as DIPAM is Budget, Finance Minister Arun Jaitley had said that the department "will adopt a comprehensive approach for efficient management of the government investment in CPSEs by addressing issued such as capital restructuring, dividend, bonus shares."
After this, DIPAM has helped exchequer garner Rs 4,500 crore through buy back of shares by cash rich Hindustan Aeronautics and Bharat Dynamincs last month. While HAL had cash balance of Rs 17,671 crore, BDL's stood at Rs 3,669 crore. "CPSEs have been advised to professionally examine their financials. It is for first time that PSUs are taking a professional view on their balance sheet and preferring to restructure the capital to get rid of surplus funds," the official added. Now onwards, the government will be monitoring PSU performance and capital restructuring so that promoters can leverage cash first before divesting equity.
Cash and idle reserves of PSUs is estimated at over Rs 2.6 lakh crore. In 2015-16, two public sector units — Hindustan Aeronautics Ltd and Bharat Dynamics Ltd — have already gone in for share buybacks that helped raise Rs 4,500 crore.
Buyback and listing of PSUs is also expected to help the government meet its disinvestment target of Rs 36,000 crore from minority stake sales this fiscal.
While the DPE is already monitoring the capacity expansion by PSUs on a monthly basis, the new memorandum of understanding of state-run firms for 2016-17 will also evaluate PSUs on these benchmarks. Listed PSUs in need of cash will also be encouraged to go to the market, instead of seeking government assistance.

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