Divestment pushed back as PSUs don't fancy buybacks

The Cabinet on Wednesday postponed a decision on divestment in PSUs through share buybacks and other means.

Several administrative ministries sought more discussions, and said the companies had no cash to spare for buybacks.

Within a couple of hours of the deferment, Finance Minister Pranab Mukherjee convened a meeting of top ministry officials, Finance Secretary R S Gujral, Economic Affairs Secretary R Gopalan and Divestment Secretary Mohammed Haleem Khan. Planning Commission Deputy Chairman Montek Singh Ahluwalia also attended.

The urgency of pushing the divestment plan, involving options such as bulk sales and buybacks, was evident in the hurriedly called meeting. The officials remained tight-lipped on the deliberations.

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A senior power ministry official told Business Standard, "We expressed some reservations as companies are already affected by the high prices of imported coal and other issues. In this scenario, to use up our cash surplus when we are considering capacity expansion in the 12th Plan does not seem appropriate. We will have more discussions on the issue."

The ministry had argued nearly a month ago that all state-run companies had big expansion plans to address the massive power shortage, and won't be able to spare cash for share buybacks.

"They (the power ministry) argued they are targeting a capacity addition of almost 100,000 Mw during the 12th Five-Year Plan (2012-17)," a finance ministry official had said at the time.

"This would need huge investments, and PSUs (public sector undertakings) under them have already committed funds for various projects," the official said.

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Others who expressed apprehensions over the plan were the ministry of petroleum and natural gas, and the ministry of coal.

The Department of Economic Affairs could not answer some conceptual questions and more discussions were sought by ministries.

The finance ministry's biggest ally, the Department of Public Enterprises (DPE), headed by minister Praful Patel, was not represented in the meeting as Patel was out of town.

While expressing overall support for the plan, Patel had warned companies must not be forced to buy back shares and the option should be left to the respective boards.

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"We had given our nod to the proposal but said the buyback should be proportionate, and all guidelines of the market regulator, Sebi, should be followed," a DPE official had said.

Sebi had on Tuesday made the necessary changes in norms related to buybacks.

Finance ministry officials said since the Cabinet had considered the divestment plan with new options, it was likely to be brought back soon with changes, if any, after consultations.

According to estimates, the combined cash surplus with all these state-run firms is around Rs 50,000 crore (Rs 500 billion), more than the current year's Budgeted divestment target of Rs 40,000 crore (Rs 400 billion).

The government is struggling to meet that, having raised just Rs 1,145 crore (Rs 11.45 billion) so far.