Western Coalfields seeks exemption on Coal India's share buyback

Coal India’s fourth largest mining subsidiary, Western Coalfields Ltd (WCL) is likely to abstain from partially extinguishing its own shares in the ongoing buyback process and thereby will not transfer any of its free reserves to its mother company.

A senior WCL official told Business Standard that it has already sought an exemption from Coal India, which holds 100 per cent stakes in WCL, and is yet to hear back from the company. “As we have expansion plans which entail investments more than our reserves, we have sought an exemption from Coal India in the ongoing share buyback process,” the official, who did not wish to be named, told this newspaper.

Although the ongoing buyback process is in adherence to the DIPAM (Department of Investment And Public Asset Management) guidelines, which has made it compulsory for any profitable public sector enterprise with a net worth exceeding Rs 2,000 crore and a bank balance of Rs 1,000 crore to buy back a maximum 25 per cent of its equity shares, the 2016 guidelines has also provisioned a public sector undertaking to seek exemption from DIPAM. WCL’s net value, as on March 31, 2016 stood at Rs  3,157.20 crore with a surplus reserve of Rs 2,860.10 crore which brings the company under DIPAM's fold. 

WCL, a Miniratna company, however, has not approached DIPAM directly and instead is routing the exemption through Coal India which holds 100 per cent equity stake in WCL. The official, however, argued that WCL’s expansion plans may exhaust its idle reserves entirely and thus it needs to keep cash at hand to fund the expansion. Besides, the person reasoned that DIPAM aims to utilise a company’s idle reserves which namely occurs if the company does not opt for expansion.

Back in November, 2015, coal minister, Piyush Goyal had announced that WCL will open 36 new mines in the coming 36 months in order to meet a targeted 100 million tonne production, which if can be implemented, will become a world record. The company has narrowed down upon a Rs 6,280 crore capital investment plan till 2019-20 in a phased manner which far surpasses its surplus reserves. The major portion of the planned investment, amounting to Rs 3,486 crore will be on land acquisition followed by Rs 2,032 crore on installation of plant and machinery. Besides, another Rs 242 crore has been earmarked for exploration. “New mines require huge investment on our part. Not only we need to invest in manpower and equipment, we also need to acquire land which is a huge cost,” the official said.
Last month, it received a nod from the environment and forest department for an expansion project in Nagpur in Maharashtra which requires an investment of Rs 263 crore.

Once on the verge of being referred to the BIFR after registering five years of negative growth and making losses for three consecutive years from 2011-12 to 2013-14, WCL staged a comeback in 2014-15 achieving a 3.6 per cent growth and a profit of Rs 161 crore.

In June last year, when Coal India had initiated a similar buyback plan which it left midway, WCL had then consented to the plan agreeing to part with Rs 789.30 crore from its reserves. After Coal India reinitiated the buyback process this time, three of its largest subsidiaries, South Eastern Coalfields, Mahanadi Coalfields and Northern Coalfields, have agreed to the plan so far which will generate Rs 4,061.4 crore.

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