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Sarad Saraf
Mumbai, Oct 28: With its disinvestment programme for the year not having taken off, it might make excellent sense for the government to ask public sector units (PSUs) to buyback their shares when it is finally allowed. This might, in fact, be the only alternative left to garner at least part of the disinvestment proceeds targeted for the current fiscal. Newspaper reports indicate that PSU majors, VSNL, ONGC, NTPC and IOC are already considering a buyback. Others like MTNL, GAIL, Concor, BHEL and HPCL may also be asked to join the bandwagon. However, while the idea itself is grand, the ability of most PSUs to fund a buyback appears highly suspect.
Consider for instance, the case of petroleum product majors like IOC and HPCL. While the government stake in IOC is over 90 per cent, it holds just a little over 55 per cent in HPCL. Therefore, as far as the government is concerned, it stands to gain more from a buyback by IOC than by HPCL. But as far as the companies themselves are concerned, both would havebenefitted if they could buyback at the current market prices of their shares. Even though both would ideally have liked to go in for a buyback of their shares at these levels, considering the capital expenditure programmes that both of them have lined up, neither might actually be able to do so in the current fiscal.
Companies like GAIL and ONGC in which the government holds over 95 per cent are also unlikely to opt for a buyback of shares in the near future. Over 85 per cent of GAIL's cash profit went towards an increase in the company's gross-block last fiscal and it borrowed over Rs 600 crore to fund its working capital requirements. It has further capital expenditure programmes lined up for this fiscal and under the circumstances, it is unrealistic to expect the company to fund a buyback. ONGC is also not in too comfortable a position to buyback its shares.
As far as Concor goes, it makes little sense for the company to buyback its shares at the current price levels. Besides, even if it wished to, itwould not have sufficient funds to do so. Also, it would benefit the FII that holds over 14 per cent of its stake more than it would benefit anybody else. Therefore, a buyback by Concor can be safely ruled out. It is also highly unlikely that BHEL in which government holding is about 67 per cent will be in a position to buyback its shares.
That leaves only two cash-rich public sector companies that might actually be expected to buyback their shares as and when allowed--VSNL and MTNL. At a price of Rs 800 per share, VSNL would be in a position to mop up almost 10 per cent of its Rs 95 crore paid-up capital. As government holding in the company is about 66 per cent, it could hope to garner roughly Rs 500 crore if the company decides to buyback. A possible buyback by MTNL at Rs 180 per share could be expected to yield a similar amount to the government. But that would take care of hardly 10 per cent of the government's disinvestment target. Besides, it may take a considerable amount of time before buybackactually becomes a reality.
Even when buyback is actually allowed, market conditions may not be conducive as the mere announcement of an intention to do so could lead to a firming of prices to unrealistic levels. The government is therefore, unlikely to achieve its disinvestment target for the year--whether or not buyback by PSUs becomes a reality--unless, of course, the special-purpose vehicle (SPV) route to warehousing shares with banks and FIs is taken.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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