NHPC First PSU In Buyback Line

After years of deliberation and planning by many public sector undertaking (PSUs), an alternative pathway of divestment has taken shape at last. With hydropower giant NHPC’s buyback spree of around 123 crore shares from its shareholders, the government is all set to corner around Rs 2050 crore (86.36% held with the government) as disinvestment proceeds. The company has offered to buy back shares at a price of Rs 19.25 per share, which will cost Rs 2368 crore in all. This will be 8.89% of its total paid-up capital and free reserve. As per company law, any company can spend 10% of its paid-up capital and reserve for capital payment towards buybacks.

It is important to note here that a couple of years ago, the Finance Ministry had proposed this alternate route of disinvestment for those companies that have enough cash reserves to fund such a buyback. In the past, SAIL, BHEL, Coal India, ONGC, etc. were mulling this option, but was not a reality then. For NHPC itself, an offer for sale (OFS) for 11.36% stake had also been proposed, but this was deferred along with many other proposed OFS owing to poor market valuations.

NHPC’s board has already approved the buyback of its stock. The record date of this buyback has been fixed at November 8, when a decision will be taken as to the shareholders who are eligible to participate in the buyback. 15% of the shares that the company wishes to buy back are reserved for small investors to be tendered as part of the offer.

As far as the financial health of the company is concerned, it has a cash reserve of around Rs 3000 crore. This is sufficient to fund this buyback, and it will certainly help the company in improvement of EPS and ratios and in optimising its capital structure.

Advocates of providing more autonomy to PSUs are not very happy with the government’s move in this regard. They are of the view that it will certainly impact the ability of the company to follow its future growth plans and may also hamper its cash health in coming years as hydro power projects require huge amount of investments.

Also, NHPC’s buyback offer would be just the start. The government has a target of Rs 40000 crore (only Rs 1300 crore has been generated so far) for disinvestment proceeds for this fiscal, and thus, this will soon be implemented in many other PSUs like Coal India, IOC, BHEL, etc. The naysayers view that this can seriously stunt the growth of these companies too.

“As market conditions are not very encouraging for FPO or OFS issues of PSU stocks, this (buy-back) route will give the government an alternative to generate money at the cost of PSUs’ performance and future growth, which is not at all sensible,” a PSUs CMD commented on condition of anonymity.