State-run companies need to help the Indian government to overcome fiscal deficit and still make an investment in a profitable venture
Regular readers of Moneylife know that Coal India is the world's largest coal producer, owning most of the coalfields in the country, and producing about 485 million tonnes of coal, with a target to reach 492 million tonnes this fiscal, though this is said to be a difficult proposition because of the troubles they experienced in Talcher.
Coal India is one of the few government-owned companies, where the private shareholding is less than 20%, and it has free cash reserves of over Rs62,000 crore! Last year, it distributed a dividend payout of Rs14 per share, on a face value of Rs10, and this year, its interim dividend was expected to be higher than this! At the same time, due to the government pressure, which has been trying to raise Rs40,000 crore to offset the fiscal deficit, a plan was afoot to go in for disinvestment.
Due to strong opposition from the labour unions, the disinvestment had to be shelved. The best alternative was to increase the dividend payout substantially! This is precisely what Coal India's Board did, this week, on Sankranthi day, by approving an interim dividend of Rs29 per share. The market price of this share was Rs250 on 29 August 2013, and it had closed at Rs328 on 30 May 2013. The share price had hovered around the Rs270 range before reaching the Rs292 range this week, just after the announcement of the dividend. In fact, it had planned to hold the Board meeting to mull the issue in February 2014, but due to the urgency, it was brought up to January 2014, and has cheered up the shareholders.
This interim dividend payment will cover Rs18,317.46 crore for the year ending 31 March 2014, as against Rs8,847 paid out last year. In addition, a sum of Rs3,100 crore will also accrue to the government in the form of dividend distribution tax, all of which will help in reducing the fiscal deficit.
As a matter of interest, government disposal of Axis Bank share holding has also brought relief. It is still possible for the final dividend to be "reasonable" when announced, but that would naturally go into the next year's account.
What can one do to take advantage of the dividend distributed by government-owned companies? To start with, they need to take the advice of their own financial consultants in choosing the companies to buy shares and be willing to hold out for a short duration only.
There are several such companies on the block that they may adopt this procedure to give substantial interim dividends. Take for instance, NMDC (National Mineral Development Corporation); the share prices (CMP – current market price) has been ruling around Rs140-Rs142. NMDC is one of the few companies operating quietly in carrying out its iron ore mining operations, and it may be "persuaded" to give out a good dividend shortly. In fact, if there is no pressure and opposition from the Unions, they may also go in for a buy-back.
Other companies include ONGC, BHEL, EIL, OIL, MOIL and GAIL. A quick look at their balance sheets and free cash reserves will enable the reader to do some homework for self-satisfaction before embarking on this purchase, which must include expert advice from one's own consultant. Some other companies may also find a place in this list!
On general thoughts on the subject, why not these companies think in terms of buy-back programmes from the government only, and not necessarily the shareholding by private investors? They can also reward the employees by making the offer to sell the shares with conditions of no-sale for a minimum of three years?
They can also offer bonus shares to private investors, and, in lieu of this, to the government they can as well pay out the value of this allotment by cash, so that the government shareholding is reduced? Also, there has been talk of using pension funds being made "free" for investment. Why not make sale of the shares—government-owned blocks—to pension funds only, so that the public can get benefited?
Readers can also come out with their recommendations; we need to think out of the box, help the government to overcome the fiscal deficit, and still make investment a profitable venture!
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)
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confidence. And they may continue to do so, when such projects involve strategic importance and national security.
However, in my opinion, the Government must set a limit for withdrawl of its capital, once the venture starts "earning" profits and is able pay dividends.
In fact, in a generalised way, such projects should be able to break even in 3 to a maximum of 5 years, and the government investment should be returned thereafter, in the next 5 years, @ 20% per year. Call it buy-back period or whatever, and once this process is complete, it should be left to fend itself and perform like a private enterprise!
Milking the PSUs just sweeps the massive mis-governance under the rug.
What will the govt do next quarter, or the next year to fix the actual problem causing these deficits? What about the harmful sinkholes like employment schemes, free food, irrational and random policy decisions etc.?
In fact, the agricultural backbone of the country in villages is being systematically destroyed by massive money sinkhole schemes like AADHAAR, MNREGA (villagers paid to do nothing/get drunk - means no farm work), practically free food - monthly 35kg of rice (at Rs. 1), pulses, (even chilli powder!), soaps, etc for free. Basically, villagers are being paid to do nothing and all the basic necessities are being given for free. What's the incentive to work, to grow food?
Also to be highlighted is the lack of any say by the company directors in deciding any of this. Govt proposes, PSU disposes.
When shit hits the fan, all these PSUs (think especially LIC - which has been milked crazy) will need massive bailouts by the taxpayers.