India Said to Tap $12 Billion of State Firms' Cash With Buybackby and
Coal India, NMDC among companies asked to buy back shares
Revenue boost crucial to meet FY17 budget deficit target
India’s 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 Ltd., MOIL Ltd., NMDC Ltd., National Aluminium Co. Ltd., India Renewable Energy Development Agency Ltd. 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 784.5 billion rupees ($11.6 billion) 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 2 trillion rupees in cash and marketable securities in 2015.
“The Finance Ministry has written to us about a 25 percent share buyback by Nalco,” Mines Secretary Balvinder Kumar said last week, referring to National Aluminium. While the department was expecting 13 billion rupees from a 10 percent stake, it can’t say for sure how much it will receive, he added.
IREDA Chairman KS 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.
India had earlier asked state companies to invest their surplus cash or pay dividends of at least 30 percent on net profits. While India will probably meet its deficit goal of 3.9 percent 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 percent aim next year when it presents its budget on Feb. 29.
Missing fiscal targets could push up bond yields and erode the government’s credibility, central bank Governor Raghuram Rajan said last month.