Buyback of Government Equity in Eight CPSEs permitted by Disinvestment Department

The Department of Disinvestment (DoD) listed eight central public sector enterprises (CPSEs) whose cash surpluses amount to more than Rs 55580 crore for the purpose of buy back  with an objective to generate more cash for the government. The DoD plans to use these CPSE s for filling the government coffers through buyback of government equity in their own company or in others.

The disinvestment norms were introduced as the government failed to meet its disinvestment target of Rs 40000 crore in 2011-12. The governemnt managed to raise only Rs 1145 crore from Power Finance Corp.

The buybacks and purchases would be subject to approval from the Empowered Group of Ministers on Disinvestment on the number of shares to be sold and the share price. Government equity in either the buyer or the seller CPSE will not be permitted to go below 51 percent in any case.

The DoD sought an enabling provision for itself from the Cabinet Committee on Economic Affairs (CCEA) to handle the transactions on behalf of the CPSEs. The CCEA approval will enable DoD to tender/offer equity on behalf of the Government of India in case a CPSE decides to buy back its own shares using surplus cash.

Under the buyback mode, the government can raise money by selling its equity in the company to the CPSE itself. So far, the DoD did not have the permission to sell a part of government shareholding even when the CPSE decided to undertake a buyback.

The CCEA allowed cash-rich CPSEs with a small equity base, to buy up to 10 per cent government equity in another CPSE if the CPSEs in question have strategic business relations or if one is dependant on the other for strategic raw material.

LIC of India and public sector banks, entities and special purpose vehicles that are wholly owned by the government were allowed to directly buy up to 10 per cent in a CPSE in off-market deals y the CCEA. The sale price in this repect is to be determined based on the formula for a preferential issue as per SEBI norms.