The government has pressured ONGC to...
buy back shares, as the move will help bridge the fiscal deficit. According to reports, the company may issue a buyback to the tune of Rs 4,800 crore.While the company has wherewithal to fund such a buyback – it had cash and liquid investments to the tune of Rs 11,428 crore as of March 31, 2018 – the hefty buyback amount could tighten the company’s planned capex.
Last week, Indian Oil Corp. Ltd (IOC) said it will buy back 29.76 crore shares for about Rs 4,435 crore and spend another Rs 6,556 crore on paying an interim dividend to shareholders. The government aims to raise at least Rs 5,000 crore through share buyback offers of state-owned firms like Coal India Ltd, BHEL and Oil India Ltd.
Apart from Indian Oil, at least six other PSUs have disclosed share buyback programmes. Leading among them include NHPC, BHEL, NALCO, NLC, Cochin Shipyard and KIOCL that could fetch the government a little over Rs 3,000 crore. The government is expected to participate in each of the share buyback programme of these PSUs.
Last month, Oil India Ltd announced a buyback of 5.04 crore of its share for a little over Rs 1,085 crore.
Share buybacks refer to the repurchasing of shares by the company that issued them. A buyback occurs when the issuing company pays shareholders the market value per share and re-absorbs that portion of its ownership that was previously distributed among public and private investors.
The Department of Investment and Public Asset Management (DIPAM), which has been set a target to raise Rs 80,000 crore for the government through stake sale in PSUs, had prodded all cash-rich PSUs to go for share buybacks. PSUs having a net worth of at least Rs 2,000 crore and a cash balance of more than Rs 1,000 crore have to mandatorily go in for share buyback.
Of the Rs 80,000 crore government disinvestment target, the government has so far raised just over Rs 15,000 crore through minority stake sale in PSUs.
The crude price fall has also raised concerns about the impact on ONGC’s revenues. The company management has argued that the current fall is not much of a concern for the company in the current year, as the average crude price for the year still remains above US dollar 65 per barrel. But sustained lower levels of crude might hamper the company’s top line and profits in the coming year.