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Finance ministry nudges Coal India to buy back 5% of its shares

The finance ministry is pushing state-run monopoly miner Coal India to buy back 5% of its shares if it is not able to proceed with its public issue due to poor market conditions, advocating a back-up plan aimed at helping the government meet its disinvestment target.

Last week the finance ministry appointed seven merchant bankers to manage the 5% disinvestment that could fetch about Rs 8,000 crore at the current market price. An official familiar with the matter told ET that the government did not want Coal India to sell shares at throwaway prices. The company should wait for the stock market and the rupee to stabilise before coming out with a public issue, added the official, who did not wish to be named.

"A buy-back in the current situation will put less pressure on the company's finances," the official said, "All of Coal India's employees' unions except three are now on board. So it is not a question of whether but when."

Analysts say a buy-back will also help firm up Coal India's share price. "More than anything, it will ease pressure of disinvestment on the scrip," said Jagannadham Thunuguntla, strategist and head of research at SMC Global Securities.

Coal India, which has about Rs 18,000 crore as surplus cash, got listed on the bourses in 2010 through an initial public offering in which the government raised Rs 15,199 crore by selling 10% stake. The government had budgeted Rs 40,000 crore from disinvestment in the current fiscal but the turmoil in the markets amid the worsening economic downturn has made the target appear difficult to achieve. So far, the government has collected about Rs 1,323 crore through disinvestment in six state-run firms.

The rupee has depreciated nearly 20% against the US dollar while the benchmark stock indices have lost about 15% from their peak this year. "We hope that cash-surplus companies will take advantage of the current market situation and go for buybacks," the official said, adding, "NHPC will soon finalise its buy-back plan and we expect Coal India to follow suit."

NHPC is expected to go ahead with a buy-back plan of Rs 1,600 crore within the next one month.

Finance Minister P Chidambaram had last month discussed the disinvestment roadmap during his review meeting with all departments of the ministry. "The finance minister has categorically said that we are not looking for a fire sale. There has been huge interest from foreign investors in companies such as Coal India and Indian Oil CorporationBSE 1.07 %. So once the currency stabilises, we will go ahead with the proposed stake sale," the finance ministry official said.

The finance ministry has already secured the Cabinet's approval to sell 10% stake in Indian Oil Corporation. The ministry has also shortlisted Engineers India Ltd rupeefor disinvestment. The government plans to work on smaller issues and get the requisite approvals for selling its stake at an opportune time, the official said.

Source: The Economic Times