The Board of Oil and Natural Gas Corp (ONGC) Board has approved the buyback of 25.29 crore shares for Rs 4,022 crore.
This is a part of the government’s disinvestment plan wherein it has directed PSUs to utilise their surplus cash to either buy back shares or give higher dividends. This buyback is expected to fetch the government around Rs 2,640 crore. The shares are being purchased at Rs 159 per equity share and represent around 1.97% of the total paid up equity shares of ONGC.
After accounting for this sale and its capital expenditure, ONGC will not have adequate cash to pay any interim dividend according to sources.
On similar lines Indian Oil Corp agreed to purchase 29.76 crore shares for Rs 4,435 crore (Rs 149 per share) and also spend Rs 6,556 crore for interim dividend. In this buyback, the government is expected to gain Rs 3,544 crore along with dividend distribution tax. A number of other PSUs are planning the same, including NHPC, Coal India, Oil India Ltd, BHEL, NALCO, NLC, Cochin Shipyard, and KIOCL. Oil India also announced a buyback of 5.04 crore shares for Rs 1,085 crore.
The government has given the Department of Investment and Public Asset Management a target to raise Rs 80,000 crore in the current financial year by selling stakes in central public sector enterprises. Under this plan, it is mandatory for PSUs with a net worth of over Rs 2,000 crore and a cash balance of over Rs 1,000 crore to go for share buyback. So far, the government has raised only around Rs 34,000 crore through divestments, while it expected to meet 75% of its target by December. The target for share buybacks is Rs 15,000 crore. Last year, the government had bettered its divestment target for the first time, raising 100,056.91 crore as compared to the initial budget estimate of Rs 72,500 crore.
While the government is still confident of meeting the target, some of the methods being used raise questions. For instance, consider how LIC was made to acquire a majority stake in the struggling IDBI Bank, or the ONGC-HPCL deal last year. This essentially amounts to penalising profitable public sector organisations. Even share buybacks have a similar outcome, as they are forcefully sucking out cash from such PSUs, whether or not they are ready to do so at the present moment. It may help the government meet its fiscal deficit targets in the short term, but it could seriously damage the health of these PSUs.