In a bid to give a boost to its attempts to meet the divestment targets, the government has decided to allow public sector companies to buy back their shares just like any other private company.
The Cabinet Committee on Economic Affairs (CCEA) in its meeting on Thursday approved a proposal to enable the Department of Disinvestment to “respond to normal practices in the corporate world if proposed by a Central Public Sector Undertakings (CPSE).”
It means that the concerned PSU will first have to approve the proposal of buying back its shares, then the Department of Disinvestment will make the requisite shares available on behalf of the government, the principal shareholder in PSUs.
According to the proposal, “The Department may be enabled to tender or offer equity on behalf of the Government if a CPSE decides to buy back its own shares using surplus cash to provide for sustained investor interest in the company and protecting its market capitalisation in the long term interest of the Company's ability to raise fund from the market.'
The Department of Disinvestment has identified nearly 26 companies. These include ONGC, SAIL, Indian Oil, BHEL, Power Grid, MMTC and MRPL besides others. As on Macrh 31, 2011, these 26 companies have a cash balance of Rs 1,57,780 crore.
Buy back of equities will make the companies to part with its reserves and surpluses. Under the existing regulations, a company will have to make provision to buy back not just for one particular stakeholder but for all. Secondly it will have to extinguish all the shares bought back within a time limit.
Reacting on the decision, Mr C S Verma, Chairman, SAIL said, “This will revive stock market sentiments. As far as SAIL is concerned, we will take a view, once we have seen the fine print of the decisions taken by the Government.”