According to CRISIL, top 20 PSUs with a pre-dividend corpus of Rs1.6 lakh crore, can comfortably pay special dividends of Rs27,000 crore and above to heldp reduce fiscal deficit by 20 basis points
CRISIL Research, has estimated that the Indian government can reduce its fiscal deficit by as much as Rs20,000 crore this fiscal by using cash reserves of public sector units (PSUs).
“Apart from the expected shortfall in tax revenue collections, the union government may not be able to meet its disinvestment target, which could result in it falling short of the budgeted fiscal deficit. In such a scenario, the cash reserves of PSUs provide an alternative source of income. However, a lot will depend on whether the government is able to convince the companies to part with the surplus cash as a special dividend,” said Mukesh Agarwal, president, CRISIL Research.
These top 20 PSUs include Bharat Electronics Ltd, BHEL, BPCL, Coal India Ltd, Container Corp Of India Ltd, Engineers India Ltd, GAIL (India) Ltd, MMTC Ltd, MOIL Ltd, NALCO, Neyveli Lignite Corporation Ltd, NHPC Ltd, NMDC Ltd, NTPC Ltd, Oil India Ltd, ONGC Ltd, Power Grid Corp of India Ltd, Shipping Corp of India, SJVN Ltd and Steel Authority of India Ltd.
By 31 March 2014, the top 20 PSUs by cash holding, will have an estimated pre-dividend corpus of around Rs1.60 lakh crore. At the end of the last fiscal, the total cash holding with these 20 PSUs was Rs1.70 lakh crore. CRISIL said its analysis shows these companies are comfortably placed to pay special dividends of Rs27,000 crore over and above their normal dividend payouts, without impacting capex plans.
CRISIL said, "We estimate, these companies are well placed to distribute 40% of the corpus (Rs64,000 crore) as dividend without impacting growth plans. That is Rs27,000 crore more than the Rs37,000 crore dividend paid by these companies last fiscal. In proportion to the shareholding, the excess payout to the government could, thus, be Rs20,000 crore out of the extra Rs27,000 crore."
“The government will have to cut spending to meet its fiscal deficit goal. But this may not augur well for an economy that has slowed down and fresh spending cuts can also create growth hurdles. Hence, the government could persuade companies with large cash reserves to announce special dividends or a buyback programme,” said Sandeep Sabharwal, Senior Director, CRISIL Research.
Without incorporating the extra dividends over and above what was paid last year, CRISIL said it expects this year’s fiscal deficit at 5.2% of the gross domestic product (GDP). The Rs20,000 crore additional income would approximate 20 basis points of the fiscal deficit, which can help the government reach closer to its stated fiscal deficit target of 4.8%, the research note said.
In a surprise move, SEBI has changed the rules of its controversial and harebrained PCAS system. It seems to have realised its folly, and has now excluded profitable companies from the ambit
The Securities & Exchange Board of India (SEBI) seems to have woken up to its poor decision making, perhaps too late. On Friday, it announced new measures to “rationalise” its controversial periodic call auction system (PCAS), a (then harebrained) scheme hatched to prevent stock manipulation and supervise illiquid stocks. According to the new system, which is better than the old one, (), the PCAS would now exclude profitable and dividend paying companies. This means unprofitable, illiquid and penny stocks would now come under the new PCAS ambit.
According to the new circular, companies would be excluded from PCAS if:
a) A scrip is having more than Rs10 crore average market capitalisation;
b) A company has paid dividends at least two times during last three years;
c) A company is profitable at least two out of the last three years and not more than 20% of the promoters’ shareholding is pledged in the latest quarter, and its book value is three times or more than its face value.
Moneylife had earlier pointed out that many good companies would come under the PCAS because they would not satisfy the older criteria set by SEBI. For instance, earlier, way back in June, we had written of the absurdity of the PCAS system in which a single trade wiped off Rs1.72 crore of market capitalisation of Hind Industries, a then healthily traded small-cap stock (even good small cap stocks are thinly traded). Suddenly, it was declared ‘illiquid’ overnight and shifted to the PCAS. Not only did it carry a stigma but it was made more prone to stock manipulation! This caused losses to shareholders who suddenly saw their wealth eroded in one shot.
This also shows how deeply flawed and shallow SEBI’s approach is to curbing illiquid stocks and stock manipulation. The market regulator spent over Rs50 crore of taxpayer’s money on elaborate surveillance monitoring systems to detect such stock manipulation. Of those companies caught by SEBI, many are let off the hook through its consent order mechanism, while at the same time small shareholders are left to suffer losses for no fault of theirs. The SEBI consent order mechanism is a form of disgorgement where unscrupulous promoters pay a sum of money to the market regulator and are let off the hook without admitting any guilt. However, SEBI doesn’t use the disgorgement to repay retail shareholders. Instead, it uses it to fatten up its own kitty. Shyam Sekhar, an avid market watcher opined on Twitter: “Disgorgement should also apply to regulatory oversight. This is the only way to bring responsible regulation.” He further tweeted: “SEBI virtually pulls the curtains on PCAS. But the officials who drafted must be sued for causing wilful loss to small investors.”
With the new rules instead of the 2000+ or so odd stocks that were brought under the ambit of PCAS (BSE has 2337 stocks as of current quarter), it is expected that the number would come down. This means that the PCAS system with fewer stocks to supervise using SEBI’s ultra-expensive monitoring system would be needless. Even then, the trading segment would be dead. Jigam's blog states: “Now PCAS will be a dead segment and now it will die a natural death in long run, because now there won’t be many companies in PCAS and they would be very illiquid.”
Will the new rules make any difference? No matter what the rules are, SEBI still needs to catch unscrupulous promoters and boost supervision, for which it has been failing. Moneylife routinely writes about many such stocks, in the every issue of the magazine’s Unquoted section Moneylife, where stock prices either have rocketed or cratered without any respect to stock fundamentals. Moneylife also carried an exclusive Cover Story last year, which saw many stocks rising and falling right under the nose of SEBI.
Coal India’s move to review dividend, buy-back arrangement and a stake sale was not conclusive as the same has been postponed to February, due to a strike threat by the workers’ union
India boasts 7% proven global reserves of coal, estimated at 60 billlion tonnes, and Coal India Ltd (Coal India), being the monopolistic supplier has a total production of about 452 million tonnes per year. The gap between production and supplies is about 70 million tonnes which is imported mostly from Mozambique and Indonesia.
Simple allocation of coal mines to a prospective power generator or a producer of steel, for instance nothing happens. Coal India must ensure that actual mining operation takes place within a reasonable period of time. From the past experience, it is known that a minimum of six years are needed before coal can actually be mined from the date of allocating a field. Laying of railway line to transport the mined coal is yet another issue.
The power sector alone consumes 78% of the domestic production. For the year ending March 2013, Coal India's target of 484 Million tonnes could not reached, just as it had failed to in the previous two years, resulting in import of 7.9 million tonnes of coking coal for India's cement and steel plants and 32.8 million tonnes of steam coal for thermal power generation. In fact, the first quarter of 2013-14, imports amounted to $3.8 billion as against $ 16 billion in 2012-13 covering imports of 35.6 million tonnes of coking coal and 106.7 million tonnes of steam coal.
One of the successful policies of the government was to allocate the coal mining responsibility, as a "captive" coal supplier, is to give the mines to power generators themselves. For instance, NTPC started mining from its captive Pakri Barwadid coal block in Jharkhand, but, yet, in the first six months of 2013-14, NTPC had to import 7.3 million tonnes (mt). It has six captive mines and hope to eventually reach 53 mt, but from five captive mines during the 12th Plan NTPC hopes to get 33 mt. Such actions of direct allotment of captive mines will reduce work responsibility of Coal India in the long run. Based on the work in progress, another four blocks, totalling two billion tonnes reserves have been allotted to NTPC; these are Banai and Bhalmuda, both in Chhattisgarh and Chandrabila and Kudanali-Laburi in Odisha.
Narasing Rao's recent claim that the Government was forcing the issue of getting the FSAs (fuel supply agreements) signed with various consumers, without bearing in mind the enormous difficulties faced in obtaining various clearances on environmental issues, both at the ministerial and state levels have been giving them lot of worries, as work was not progressing at the desired speed.
In fact, to expedite the coal production, Coal India had sought the assistance of the Planning Commission to design a model concession agreement to outsource the work to mine developers and operators (MDOs). But this model agreement that runs to over 250 pages, simply is not workable as it passes the full responsibility of securing all the clearances to CIL and MDOs getting everything on a platter!
In the meantime, the Coal Ministry is of the view that surplus coal from captive coal mines should be "bought" from the producers "at cost" only. The only exception was made in the case of Reliance Power (Sasan Ultra Mega Power Project), when it was cleared to use its surplus coal for its own power project in Chitrangi in Madhya Pradesh, way back in August 2008. In fact, the government must now permit the captive coal miners to sell directly any surplus coal that they may mine to others, be it steel, cement or power generators.
Such a move will lessen the burden on Coal India, and it is foolish to think that this will undermine the status or position of Coal India.
Narasing Rao, in his recent statement mentioned that Coal India would make an appeal against the penalty imposed on it by the Competition Commission of India to the extent of Rs1,773 crore for misusing the monopoly status by supplying poor quality coal at higher prices. This issue is likely to be debated in great detail, in as much as even coal rejects and middlings, after washing of coal are disposed off as per provisions of Colliery Control Rues 2004 and Coal Mines (Taking over Management) Act 1973. Even rejects lower than G-grade have caloric value and a huge market exists for these from power generators. Records show that Tata Steel was allowed to sell as much as 30.58 lakh tonnes of these by the coal ministry. As for the caloric values, one of the simplest solutions, by mutual agreement, would be to have regular tests prior to despatch, done on a random or representative sampling basis, as the quantities involved are huge.
Finally, the recent move by the Board of directors to review the issues of high dividend, buy-back arrangement and a stake sale upto 5% was not conclusive as the same has been postponed to February, due to a strike threat by the Union. The only redeeming feature that one can notice is the opportunity for Coal India to go into "capturing" the coal bed methane that is simply evaporating from its coal mines. The Board would do well to ensure that all Independent directors are in place and secure qualified and experienced overseas miners to undertake a joint venture to explore the CBM.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)