Govt to take buyback route to tap Rs 78k cr of public sector firms' cash

The government has asked state-run companies to buy back shares, people with knowledge of the matter said, as Prime Minister Narendra Modi looks to narrow Asia's widest Budget deficit without cutting stimulus spending.

The boards of Coal India, MOIL, National Mineral Development Corporation (NMDC), National Aluminium Co (Nalco), India Renewable Energy Development Agency (Ireda) are among those that will have to decide on valuations, the people said, asking not to be identified, as the talks are private. These companies had about Rs 78,450 crore in cash and marketable securities last year - according to data compiled by Bloomberg - more than double Modi's social welfare budget.

A revenue boost is crucial as back-to-back years of weak rainfall compel Modi to spur demand in rural areas even as pressure mounts to avoid runaway spending. The rupee, sovereign bonds and stocks had their worst January since 2011, weighed down by the global slowdown and as concerns about fiscal slippage mount. While weak global demand denies companies adequate returns on their investment, falling share prices offer them a good chance to consolidate ownership, the people said. About 50 listed state-run companies had a total Rs 2 lakh crore in cash and marketable securities in 2015.

"The Finance Ministry has written to us about a 25 per cent share buyback by Nalco," Mines Secretary Balvinder Kumar said last week, referring to National Aluminium. While the department was expecting Rs 1,300 crore from a 10 per cent stake, it can't say for sure how much it will receive, he added.

Ireda Chairman K S Popli said the government's decision is a "good move" that will improve companies' valuations and earnings per share.

Coal India Chairman Sutirtha Bhattacharya and NMDC spokesman Rafique Ahmed didn't immediately answer multiple calls seeking comment. An e-mail to Neeraj Dutt Pandey, MOIL's company secretary wasn't immediately answered. Finance Ministry spokesman D S Malik said he couldn't immediately comment.

The government had earlier asked state companies to invest their surplus cash or pay dividends of at least 30 per cent on net profits.

While the government will probably meet its deficit goal of 3.9 per cent of gross domestic product for the year through March, investors including Standard Chartered Plc and Morgan Stanley predict it will deviate from its 3.5 per cent aim next year when it presents its Budget on February 29.

Missing fiscal targets could push up bond yields and erode the government's credibility, Reserve Bank of India Governor Raghuram Rajan had said last month.

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