The central government is assessing the cash position of state-owned companies and will ask them to ramp up dividend payouts and share buybacks as much as possible, Business Standard has learnt. This comes at a time when the Covid-19 pandemic and the nationwide lockdown has ensured that revenue from sources like taxes and divestment may be nowhere close to the budgeted targets.
The thinking in the centre is that since economic activity is low, PSUs are not spending on capital expenditure as much as they had anticipated, and hence are sitting on reserves which can be used to pay dividends and buy back shares, sources said.
We are talking with CPSEs to assess their financial status, and the amount of cash reserves that they have, and the state of their balance sheets,’ said a senior government official.
In 2019-20, three state-owned companies bought back shares worth Rs 821.8 crore from the centre, which was 1.6 per cent of divestment proceeds of Rs 50,299 crore. For the same year, revised estimates of dividends from non-financial PSUs was Rs 48,256 crore, compared with budget estimates of Rs 57,487 crore.
The amount the centre garners from share buybacks by PSUs started being counted as part of divestment proceeds from 2015-16. In absolute terms, the highest ever such proceeds were in 2016-17, when PSUs like Coal India, Neyveli Lignite, NHPC Ltd, and NMDC Ltd brought back shares held by the centre worth Rs 19,023 crore, which was nearly 40 per cent of that year’™s divestment proceeds of Rs 47,743 crore.
Given that the severe global economic slowdown has led to concerns about how much the Department of Investment and Public Asset Management will be able to do with its big privatization plans this year, including of Air India, Bharat Petroleum, Shipping Corp and others; share buybacks could again form a major chunk of whatever the government manages to get through divestment in 2020-21.
Economic activity is low so PSUs have had to recalibrate their capex plans. We have told them to assess how much they want to keep aside for contingency, how much can be used up this year and how much can be given to the government, they are doing that exercise,’ said the official, adding that while proceeds from dividends and buybacks will come in second half, this work has started now.
The mentality in public sector is that they will be comfortable if they have a lot of cash with them, unlike the private sector which can deploy the cash for expansion and capex much quicker. PSUs want to keep cash even for capex needs for the next two-three years,’ said a second official.
Finance Minister Nirmala Sitharaman, and her predecessors including the late Arun Jaitley and P Chidambaram, have maintained the policy of advising non-financial state-owned companies that if they are not utilizing their cash reserves for capex needs, they should give it to the centre through dividends or recently, share buybacks.
The policy is already in place. We check their balance sheets and see how much free cash they have and what are their declared capex requirements. We always tell them not to keep cash,’ the second official said. However, the person also warned that because of the slowdown, the PSUs’™ cash position may also have depleted.
For FY2021, DIPAM faces its highest ever divestment target of Rs 2.1 trillion. Meanwhile, dividends from non-financial PSUs have been budgeted at Rs 65,747 crore.