Coal India is beefing up its balance sheet ahead of the much speculated buyback announcement.
Coal India’s fully-owned subsidiaries, Mahanadi Coalfields (MCL) and Northern Coalfields (NCL) have announced share buy backs worth Rs 1,029 crore and Rs 949 crore, respectively, from the holding company, Coal India Limited.
This will infuse Rs 1,976 crore into the holding company, which can then go ahead and buy back shares from the open market. However, it needs to be noted that Coal India will need its other subsidiaries to buy back shares from itself to ensure it has sufficient cash reserves.
Coal India’s standalone cash and equivalents stood at Rs 4,464 crore as of 31 March 2016, while consolidated cash stood at Rs 38,313 crore. With the MCL and NCL buybacks, Coal India’s cash balance will rise to Rs 6,440 crore.
However, even with the additional cash, Coal India will be able to fund the buyback of only around 3 percent of its outstanding shares, given the current share price of Rs 307. Hence, Coal India’s other subsidiaries will also need to buyback shares.
A look at Coal India’s subsidiaries cash positions (as of FY15) shows each of its 7 subsidiaries had substantial cash as of March 31, 2015. Coal India will have to use a portion of these cash balances to fund its own buyback.
Apart from the likely share buyback, Coal India has already paid out interim dividend of Rs 27.40/share in March 2016, which boosted government’s coffers by Rs 13,800 crore.
Government wants public sector companies to buy back shares in order to help it meet its Rs 56,500 crore divestment target for FY17.
The government pressurising PSUs to go in for buybacks, since divestment attempts over the past five financial years have fallen short of estimates by between 20 and 72 percent.
MOIL and NMDC have already announced buy backs of over 20% of its shares on June 7. No wonder, Coal India is laying the groundwork for a buyback
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