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Govt Allows Cash-Rich PSUs to Buy Back Shares

  • 33 firms were flushed with Rs 1,79,953 cr at the end of FY11.In yet another move to garner additional resources to bridge the widening fiscal deficit, a Cabinet panel on Thursday gave its nod for cash-rich public enterprises to buy back shares.Soon after the meeting of Cabinet committee on economic affairs, heavy industries minister Praful Patel said the Cabinet has cl-eared this proposal, listed in the agenda on Thursday, but there was no official bri-efing as there was some minor changes in the proposal that had been cleared.

  • “It all depends on companies, it is just an enabl-ing provision,” Praful Patel, minister of heavy indust-ries, told reporters without giving any details.Data available with Capitaline showed some 33 state-run PSUs from the BSE PSU index (excluding banking and finance) had a sum total of Rs 1,79,952.96 crore of cash and cash equivalents at the end of financial year 2010-11.Among them, Coal India had Rs 45,862.28 crore of cash, followed by ONGC, NTPC, SAIL and NMDC, which were sitting on a huge cash pile of Rs 80,726.47 crore.

  • Share buyback would help the government beca-use it is the biggest shareholder in these companies. Also buyback would help in improving share value, the-reby boosting the market.The move seen as an attempt to explore all possible methods to reach the Rs 40,000 crore revenue mop up targeted in the budget through disinvestment this financial year.The Cabinet decision came on a day when the government off loaded five per cent of its equity in ONGC to mop up around Rs 12,500 crore.

  • In the face of choppy m-arket conditions, governm-ent had mopped up only Rs 1,144 crore through 10 per cent stake sale in Power Finance Corporation in May.In the face of burgeoning oil and fertiliser subsidy and shortfall in tax revenue due to slowing economic growth, the fiscal deficit this year is expected to overshoot target of 4.6 per cent of GDP this financial year.Disinvestment target not being met would also contribute to the widening fiscal deficit that is likely to overshoot by 1 per cent of GDP. As per the existing regulations, listed companies are required to have minimum public shareholding of 10 per cent, but at least eight state firms, including Hindustan Copper, HMT, MMTC and State Trading, at present don’t comply with these rules, analysts said.

  • Other cash-rich companies, such as Coal India or NTPC or SAIL, whose cash reserves are far beyond their expansion or acquisition plans, may consider investing in share sales in other public sector companies. ”If the companies have surplus cash they can go for this option,” a government source said, adding: “The final decision would be taken by the company boards.”Central public enterprises constituted 21.11 per cent and 21.47 per cent of the total market capitalisation of companies listed at BSE and NSE, respectively, as on February 29. The CPSE with the highest market capitalisation is Oil & Natural Gas at Rs 2,50,975 crore (BSE) and Rs 2,50,847 crore (NSE) as on February 29.

  • VSNL was the first CPSE to be divested by way of a public offer in 1999-2000. ONGC public offer in 2003-04 has been the largest CPSE FPO, raising Rs 10,542 crore. Coal India Public Offer in 2010-11 has been the largest CPSE IPO, raising Rs 15,199 crore. Meanwhile, CCEA deferred a decision on slapping duties for imported power equipment, a demand of the domestic power equipment manufacturers, to curb large power equipment imports from China. A high-ranking government body had recommended imposition of a 10 per cent import duty and 4 per cent special additional duty on all imported power gears.At present, there is no duty on imported power gears for projects above 1000 mw while a 5 per cent duty is applicable on imported power gears for projects below 1000 mw.

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