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The Buyback Solution

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Decks are being cleared for the government to raise its target of Rs 40,000 crore via asset sales by March. And this may be done by the buyback route. The Department of Disinvestment proposal for buyback of government equity by state-owned companies is likely to get Cabinet approval, a move that will help the Centre to meet its disinvestment target of Rs 40,000 crore in 2011-12.  On Monday, market Regulator Securities & Exchanges Board of India (Sebi) approved the proposal for promoters to auction shares and lower their stake instead of selling shares in public offers. The shift will help promoters maintain 25 per cent public shareholding. Sebi has also cleared regulatory changes to allow PSU share buybacks, reported Bloomberg and TV channel CNBC TV18. "The buyback issue would be placed before the Cabinet Committee on Economic Affairs (CCEA) for appropriate decision," sources said. MMTC, Hindustan Copper, State Trading Corp, Dredging Corp gained between 14.5 per cent and 19.4 per cent on the news while NMDC gained 6.3 per cent. Sebi reportedly okayed the plan at its board meeting in Mumbai on Tuesday. The board also approved changes to rules to allow companies to buy back shares from founders, it was reported. The sensex slid 25 per cent last year, its second biggest annual decline, prompting Prime Minister Manmohan Singh's government to delay a plan to sell stakes in state-run companies to finance its budget deficit. The auction proposal is the latest attempt by finance minister Pranab Mukherjee to raise funds after meeting 3 per cent of his Rs 40,000 crore asset-sale target for the year ending in March. Due to the volatile stock market scenario, the finance minister had been compelled to defer share sale of state-owned companies like Oil and Natural Gas Corporation, Steel Authority of India Ltd and Indian Oil Corporation. The government had been planning to reduce its deficit via stake sale of public sector units. Earlier in December, asked if share buyback by public sector undertakings is among the options, Finance Secretary R S Gujral said: "There are options, including buyback. That is one of the options". The Secretary, however, said the decision on process of disinvestment will be taken by Finance Minister Pranab Mukherjee in consultation with Department of Disinvestment. "It is between Disinvestment Secretary and the Finance Minister. If any of those options require Cabinet approval, the ministry will take it. We are working on it," he said. Cabinet Go-Ahead Likely The DoD has already sought the opinion of concerned ministries for buyback of shares and has prepared a list of cash-rich PSUs in this regard. The government has been thinking of raising funds through the buyback route, as it has not been able to raise money through sale of equity in public sector units on account of uncertainty in stock markets. Under the buyback mode, the government can raise money by selling its equity in the company to the PSU itself.      According to the current regulations, market regulator Securities and Exchange Board of India (SEBI) allows companies to buy back their own equity from shareholders.