Oil & Natural Gas Corp. (ONGC) is set to lead India’s top state resources companies in paying a record dividend as Prime Minister Manmohan Singh seeks to use part of their $27 billion cash hoard to fund his government’s deficit.
Eight energy, mining and metals companies will likely pay at least 157.1 billion rupees ($3.1 billion) to the government for the year ending March 31, based on interim payouts and Bloomberg forecasts for special and final dividends. That’s 6.7 percent higher than the amount that ONGC, Coal India Ltd. (COAL), Oil India Ltd. (OINL), NMDC Ltd. (NMDC), GAIL India Ltd. (GAIL), NTPC Ltd., Steel Authority of India Ltd. and Bharat Heavy Electricals Ltd. (BHEL) paid in the previous fiscal year.
Singh’s government has asked its companies to increase dividends and buy back shares for the first time as it struggles to raise money by paring stakes in some of them. It received $2.5 billion this month selling a 5 percent interest in ONGC, with investors bidding for fewer shares than offered. India’s budget deficit topped the target for the year in the 10 months through January, adding pressure for steps to restrain the gap.
The government is “apparently using public sector undertakings as piggy banks,” said Seth Freeman, San Francisco- based chief executive officer at EM Capital Management LLC, which manages assets in emerging markets including India and China. “It is becoming an activist shareholder by asking companies for higher dividends and to buy back shares.”
ONGC Chairman Sudhir Vasudeva and Coal India finance director Asok Kumar Sinha didn’t answer two calls each to their mobile phones seeking comment. Finance Ministry spokesman D.S. Malik wasn’t available in his office for comment after two attempts to reach him by telephone.
The board of Coal India, the world’s biggest producer of the commodity, is scheduled to meet March 12 to vote on a midyear payout. The Kolkata-based company may declare an interim dividend of 4 rupees a share, according to Bloomberg forecasts, matching the previous year’s total payout. Investors holding Coal India shares as of March 17 will get the dividend.
New Delhi-based ONGC’s board meets March 15 to decide on a second interim dividend after approving an initial payout of 6.25 rupees a share on Jan. 4. Bloomberg forecasts the country’s biggest oil and gas explorer may pay an additional 4.25 rupees. It paid a total of 8.75 rupees in the previous year. The payout will be made to ONGC shareholders as of March 20.
Coal India gained 2.8 percent to 336.05 rupees in Mumbai trading, the biggest increase since Jan. 25. ONGC rose 1.4 percent, while the benchmark Sensitive Index advanced 2.1 percent. Bharat Heavy climbed 2.8 percent, Steel Authority 4.3 percent, NTPC 2 percent and Oil India 0.1 percent.
Coal India and ONGC are also likely to declare final dividends after they report full-year earnings in May, said Jagannadham Thunuguntla, a strategist at SMC Global Securities Ltd. (GLBS) in New Delhi. He expects the government to exceed the dividend collection target for the year by at least 100 billion rupees, or 43 percent.
Finance Minister Pranab Mukherjee aims to cut the budget deficit to 4.6 percent of gross domestic product this fiscal, the lowest in four years. Slowing economic growth has reduced revenue and a 25 percent drop in the benchmark stock index last year hampered his plan to raise 400 billion rupees selling shares in state-run companies.
Mukherjee is due to present the budget statement for the year starting April 1 to Parliament on March 16.
“The government is desperate for funds,” said Pauli Laursen, an Aabenraa, Denmark-based fund manager at SydInvest Asset Management, who manages about $700 million shares of BRIC companies, including Indian state-run firms. While “dividends would be the best way to get money as it benefits minority shareholders,” higher payouts may curb investments and growth of the companies and the country, he said.
ONGC plans to spend 1.64 trillion rupees in the five years to March 2017, 31 percent higher than in the preceding five years, to raise oil and gas output, Chairman Vasudeva said Feb. 1. The company is India’s biggest by net income in the past 12 months, followed by Reliance Industries Ltd. (RIL) and Coal India, according to data compiled by Bloomberg.
The explorer had 274.4 billion rupees of cash and equivalents as of Sept. 30. Coal India holds the largest cash hoard among state-run companies, excluding banks, with 549.8 billion rupees.
Oil India, the second-biggest state explorer, has announced two midyear dividends totaling 35 rupees a share, its highest payout to date. NTPC, the nation’s biggest electricity generator, agreed to pay 3.5 rupees a share, its highest interim dividend, on Jan. 27, according to data compiled by Bloomberg.
In the budget for the current fiscal presented last year, Mukherjee anticipated 234.9 billion rupees in dividend payouts, which was 9.6 percent lower than the estimated 259.8 billion rupees collected in the previous year. He said Jan. 11 it will be “difficult” for the government to achieve its deficit target for the year.
At a Jan. 12 meeting in New Delhi, the Finance Ministry asked chiefs of state companies to increase payouts, according to a ministry official with direct knowledge of the matter.
Asia’s third-largest economy expanded 6.1 percent in the three months ended Dec. 31, the slowest pace in more than two years. Growth slowed for fourth straight quarter as domestic demand weakened and the global recovery faltered.
“The government will try and make up a lot of the shortfall from stake sales through higher dividends,” SMC Global’s Thunuguntla said. “ONGC and Coal India are becoming the government’s ATM cards.”
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