Govt to tighten grip on cash-rich PSUs

GRAPPLING for funds, the Centre may target cash-rich public sector undertakings (PSUs), which are often seen as bailing out the government in trying times.
From a situation of writing periodic letters to PSU boards on aspects of dividend payouts or buybacks of shares or bonus issues, the Centre is all set to coming out with a set of comprehensive guidelines on crucial areas of capital restructuring to spur economic growth.
The Centre may mandate these cash-rich PSUs to pay minimum...
annual dividends. The Centre has also spelt out situations when buybacks need to be put through and bonus shares issued by such entities.
The guidelines, issued by the Department of Investment and Public Asset Management, are aimed at addressing resource management issues of PSUs. The guidelines spell out that profit-making PSUs shall deliver at least 30 per cent of their net profit or 5 per cent of their net worth, whichever is higher, as annual dividend to the Centre.
The norms follow an announcement in Budget 2016-17 for a comprehensive investment management strategy, and will be binding on all the 157 profit-making PSUs, especially Maharatna PSUs such as Coal India Ltd, Bharat Heavy Electricals Ltd and GAIL.
The Centre will also play an active role in the investment decisions of PSUs through its nominee directors and nodal Ministries, which have been asked to ensure efficient allocation of government funds for growth and economic development.
PSUs with defined reserves and surplus of over five times their paid-up capital will be expected to look at issuing bonus shares. Issuing bonus shares will be mandatory if their defined reserves and surplus exceeds 10 times their paid-up capital.
In order to make the share price of PSUs more lucrative for investors, PSU boards have been asked to discuss and decide on splitting of shares. In case the market price or book value of a firm’s share exceeds 50 times its face value, it will be mandatory to split its shares.
Further, every PSU with a net worth of at least Rs 2,000 crore and cash and bank balance of over Rs 1,000 crore will buy back its shares.
Others will be expected to consider the issue of buyback based on parameters of cash and bank balance, capital expenditure and business expansion in the last three years and net worth in their first board meeting after the end of the fiscal.
In 2016-17, the Centre expects dividends of Rs 53,883 crore from PSUs and from other investments, against Rs 44,365 crore it received last fiscal. The Internal and Extra Budgetary Resources of Public Enterprises is pegged at Rs 3.98-lakh crore this fiscal against the Revised Estimate of Rs 3.21-lakh crore last fiscal.
PSUs that do not comply with these guidelines will have to seek a special exemption from the Finance Ministry.
The Department of Public Enterprises will also capture these parameters in its annual survey.