CIL’s cash pile under pressure as share buyback looms

Coal India Ltd (CIL) is hopeful of completing the government-dictated estimated ₹6,000 crore share buyback by September.

Earlier on Saturday, the CIL board approved buyback offers from four cash mining subsidiaries – Mahanadi Coalfields, Western Coalfields, South Eastern Coalfields and Northern Coalfields.

While offers from Ranchi-based Central Coalfields are yet to be approved, the subsidiaries have agreed to pay a total of ₹5,400 crore to buy back shares from the parent. The buy back will not change the ownership pattern, as the share will be extinguished.

Dhanbad-based Bharat Coking Coal and Asansol-based Eastern Coalfields have both just come out of prolonged sickness and are out of the purview of the scheme.

Research wing CMPDI also didn’t qualify for the buyback.

The actual outgo of CIL in buying back shares from the market will be known in August, when the company finalises its first quarter results.

As per rules, the company may spend up to 25 per cent of the free reserve in share buyback.

Sources said that normally, such a proposal takes a little over three months from the offer stage to get completed.

The scheme will leave a direct impact on CIL’s cash reserve of ₹38,000 crore as on March 31, 2016. Benefits are dependent on the buoyancy in share value in the stock market.

The share price of the company moved up from ₹280 a month ago to ₹311.90 at the closing of trading hours on Monday.

Participation to the buyback plan will depend on the premium offered. Company sources say there are different methodologies to decide premium, including book value, EBIDTA, earning per share, three months weighted average, among others.

The share buyback plan is a continuation of the erstwhile UPA government’s policy of extracting CIL to bridge the budgetary gap.

The process was initiated by the previous UPA government in 2013-14, when the company was asked to earmark ₹18,317 crore as dividend (290 per cent), up from ₹8,842 crore in 2012-13.

About ₹16,485 crore went to the Central coffers.

The dividend payout for 2014-15 dipped to 207 per cent, totalling ₹13,074 crore, on the back of a 5-per-cent disinvestment, accruing the government ₹22,557 crore.

As the plan for further disinvestment was delayed, dividend went up to 274 per cent, totalling ₹20,830 crore for 2015-16.

The net result is that the CIL cash reserve, which was nearly ₹60,000 crore, was down to ₹38,000 crore in just three years. It will be slashed further after the buyback.

Most importantly, with wage agreements up for renewal, workers will now demand for their pound of flesh. CIL sources confirm that the latest round of revision in coal prices will not be enough to support hike in wages.