Selling the Specified Undertaking of Unit Trust of India (SUUTI) stake in firms like Axis Bank, Larsen and Toubro is no solution to the government’s last moment sprint to tackling its fiscal dseficit, says former finance secretary, S Narayan.
Also read: Decision on SUUTI's Axis Bank stake sale today: SourcesIn a detailed discussion, Narayan along with CS Verma, chairman and managing director, NMDC and Anil Singhvi of ICAN Investments share their views on the government’s attempts to rein in fiscal deficit.
“I am not sure whether in Axis Bank and L&T the money will come back to government or it will go back to some other institutions who are holding the shares. I don’t think government is holding these shares directly. It will not help the finance minister in his fiscal deficit target,” explains Narayan.
Below is the edited transcript of Narayan’s interview to CNBC-TV18.Q: If you can give us a sense of the communication your company has had with the government or your board has had with the government, what is it that they are looking for from NMDC atleast? Is it a special dividend, is it possibly a buyback, is it to increase cross holdings between PSUs, what is the quick fix solution that NMDC might be able to help meet?
Verma: For the year 2013-14, NMDC has already declared the first interim dividend of 300 percent. We have already paid that 300 percent interim dividend. Last year we had paid two interim dividends and one final dividend, total amounting to about 700 percent. Now for the further dividend calls and further dividend declaration, we have to finalize those things.
Q: Have you received such requests? Have you received a request for a special dividend because the government is eventually the 80 percent shareholder in your company, so, is that what you have got?
Verma: We have been discussing from time to time but ultimately the call will be taken by our board of directors.
Q: What is it that you would best prefer? Would you prefer a special dividend payout and if yes what is the capacity that your company has in terms of the amount of money that it can afford to spare? Would you prefer some sort of buyback again, how much would you be willing to spend on that or cross holdings or buying stakes in other PSUs?
Verma: We are a listed company. I cannot divulge the details. Let the board take a call. We are required to give a proper notice to the stock exchanges where our shares are listed before we take up any call to recommend any dividend. Let the call be taken by the shareholders at the appropriate time.
Q: What do you personally prefer amongst these three or four options that are staring NMDC in the face?
Verma: We are having cash at bank balance of about Rs 22,000 crore and naturally, the company is doing very well. The growth in the third quarter has been 35-40 percent. If we are to reward our shareholders, the board will take a call at the appropriate time.
Q: What is the best option before government because this is something government’s often face, you must have faced this also when you were in the ministry; what is the option before the government and what is the best course as far as the government is concerned?
Narayan: We have to breakup this issue into three or four. The best option would be for the government to disinvest. Disinvest and give away the public sector entities or at least some of the shares to larger public so that the larger public can benefit from huge capex, huge margins, etc. So, it would be ideal to disinvest. Secondly, for companies which are having huge surplus of cash and fairly limited investment program, drawing out of cash is not bad thing because accretion of cash happens even during the performance on a day-to-day basis. So, I would call it a second best option.
Just leaving the cash behind in the company doesn’t make sense. What are you leaving it behind for? If a company with Rs 22,000 crore has only Rs 2100 crore capital requirement why are you leaving the money back? It is much better if one takes it away. It is a good idea.
Q: Take it out in the form of a buyback or take it out in the form of dividend what is better for the company, what is better for the government?
Narayan: If you do a buyback what you are essentially doing is you are reducing the total quantity of the shares which are available. So, in a way you are marking up the market price, this makes sense. If one is able to do something which is a combination of divestment, then a buyback makes sense for the shareholders- both minority as well as the government. So, disinvestment is the first option but there is nothing wrong in what government is doing in terms of a special dividend.
Q: We do tend to get sentimental about cash in this country and you make a fair point that if the cash is sitting around doing nothing except for depressing your returns then you may as well find a way to return it to shareholders. Given this last minute flurry that we are seeing from the government all of this crammed into the last quarter of the fiscal just so that we can add up the numbers and make that 4.8 percent mark. Do you think it is going to be in a sense too little too late for the macroeconomic picture?
Narayan: Many corporates decide to pay dividend towards the end of the year depending on the performance and sometimes, it is a substantial dividend which the shareholder was not perhaps expecting. So, in a way, it is cramming at the end of the year that happens in private companies as well as public companies. However, we cannot hold a fig leaf over the fact that the Finance Minister is stressed for funds and he is looking all around to find funds and this appears to be a comfortable and an easy option available for him so he is taking it.
My argument is there is nothing wrong with his taking it, particularly when his disinvestment efforts have failed. So ideally he should have gone in for disinvestment, it has not succeeded so he is going in for this.
Q: The other option open is the selling of the government's stake or SUUTI stake in companies like Axis, L&T and ITC. We hear that Axis sale is very likely. What is stopping the government from selling its stake in L&T and ITC?
Narayan: I am not sure whether in Axis Bank and L&T the money will come back to government or it will go back to some other institutions who are holding the shares. I don’t think government is holding these shares directly. It will not help the finance minister in his fiscal budget.
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