Kolkata: Barely four months after it concluded a Rs3,650 crore buyback of shares, state-owned Coal India Ltd (CIL) has started to take money out of its subsidiaries to make further payments to its shareholders.
CIL is eyeing at least Rs3,000 crore in cash from its profitable subsidiaries, according to key officials. The market expects this cash to be distributed among CIL’s shareholders through an interim or special dividend.
CIL’s board is set to meet on 6 March to decide on an interim dividend, according to the company’s regulatory filings.
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On Friday, the board of Northern Coalfields Ltd, one of the subsidiaries, agreed to pay CIL Rs1,244.12 crore by way of a buyback of shares. On Monday, the board of South Eastern Coalfields Ltd will meet to take a similar call, followed by that of Mahanadi Coalfields Ltd on Tuesday.
The subsidiaries will be buying back their own shares, giving CIL a portion of the cash lying in their treasury. For instance, Northern Coalfields will be buying back shares representing 4.29% of its equity capital, paying CIL Rs1,244.12 crore. The deal values the wholly owned subsidiary at Rs28,950 crore. Northern Coalfields had Rs4,810.5 crore in cash at the end of March 2016.
The two other subsidiaries to consider buyback of shares, South Eastern Coalfields and Mahanadi Coalfields, had, respectively, Rs4,693.87 crore and Rs11,611.96 crore in cash at the end of March 2016.
This exercise is aimed at complying with a government directive on payout of cash by way of dividend and buyback by state-owned enterprises, said a key CIL official, asking not to be named.
Last year in May-June, the Union government had asked state-owned enterprises with a net worth of Rs2,000 crore and more than Rs1,000 crore in cash to buy back shares, paying the central exchequer.
When CIL’s management was deciding upon its buyback of shares last year, the company had initially asked five of its subsidiaries to pay up. But eventually in early July, CIL decided to buy back 100.89 million shares with Rs3,650 crore available on its own books, paying Rs335 per share.
The buyback was concluded at the end of October.
CIL’s shares are still trading at a discount to the buyback price: they closed at Rs328.50 each on BSE on Friday.
At that time, the CIL management had concluded that buyback was a better way to reward its shareholders than paying a special dividend because buyback led to a contraction in equity base and in turn led to increase in profit per share.
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The government’s holding prior to the buyback was at 79.65%. At the end of December, it had gone up marginally to 79.78%. Life Insurance Corp. of India, the second biggest shareholder in CIL after the government, currently owns 6.78% compared with 5.86% prior to the buyback.
The key concern among a section of CIL’s officers was whether this cash drain would impair the company’s ability to expand mining. At the end of fiscal 2016, CIL and its subsidiaries together had Rs38,312 crore in cash—this has been declining since it peaked at Rs60,192 crore at the end of 2012-13.
Former CIL chairman Partha S. Bhattacharyya had said last July at the time the board decided on a buyback that a small payout of Rs3,650 crore would not in any manner impact the miner’s expansion plans.
CIL officials maintain a further payout of a similar amount will not have any significant implication for expansion, but it will impair the company’s treasury earnings going forward. In fiscal year 2015-16, CIL reported receipt of Rs2,365 crore from non-core operations, most of which came from its treasury.
