The Cabinet has allowed state-run companies to buy back shares. In an interview to CNBC-TV18, Portfolio manager PN Vijay says, buyback is a very sensible thing to do. “I think government will raise about Rs 20,000 crore without much problem, without affecting the companies and without disturbing their debt profile too much,” he adds.
The Cabinet has allowed state-run companies to buy back shares . In an interview to CNBC-TV18, Portfolio manager PN Vijay says, buyback is a very sensible thing to do. “I think government will raise about Rs 20,000 crore without much problem, without affecting the companies and without disturbing their debt profile too much,” he adds.
Below is the edited transcript of his interview on CNBC-TV18. Also watch the accompanying video.
Q: If you have gone through the list of likely candidates for buyback, which are the ones that maybe asked to buyback their own shares?
A: From a very superficial assessment, the companies must have cash to buyback. I suppose the government would be more comfortable, if even after the buyback the government holding was fairly high, so that puts Coal India , and maybe one or two others.
It all depends on how much the government wants to raise through this route. They have a Rs 40,000 crore target and they have done Rs 12,000 crore through ONGC. The key requirement would be that companies have a lot of cash in their balance sheet.
Q: There are multiple companies which have a significant amount of cash. According to you, which are the three-four companies? You spoke about Coal India, which are the others? How much could we expect from them by way of a buyback in terms of quantum?
A: For that one needs to see the level of government holding. I think the debt in the portfolio is important. But it will be very politically sensitive if government holding comes down below 50% or so. I guess Coal India, NTPC ; MMTC doesn’t need the cash, it’s a trading company and Oil India is extremely well funded
Q: Coal India, the amount of listed stocks available is just about 10%. So, would a buyback be announced at all that would bring down the public holding even further? Is it likely therefore that the special dividend idea would still be resorted to?
A: Well, I think the buyback would be from the government.
Q: But would a selective buyback be permitted within the law?
A: I guess the whole idea would be to reduce the government holding, where they have more than 90%. Another option, they could have, is to cross hold. The government has done this in past. In 2001, Yashwant Sinha did it. One stage, they will ask NTPC to buy Coal India shares and then that goes sort of out with the government holding and things brighten up, NTPC will then unload into the market. So, you could have a two stage process of crossholding, in case government wants to in a way bring down its holding without disturbing the market liquidity now.
Q: The government is trying to make multiple attempts to shore up their divestment amount that they could raise in this fiscal. In your assessment, via this buyback route which has been now approved, how much could the government raise in this fiscal itself? Would you recommend any kind of a position that someone should take at current levels ahead of such a buyback?
A: I think buyback is a very sensible thing to do. Just when the markets are trying to look up, if on the other hand government did an open offer or any such mechanism, whatever liquidity is there it will get sucked out. If the government is looking for about Rs 15,000-20,000 crore out of this, that will be very bad for the market. So, that way by keeping it within the family as it were the government is moving the market in its favour.
My own sense is that the government would touch about Rs 30,000 crore. As an investor, I see a buyback as something favorable. What are these PSUs doing with their cash? They are putting it in some liquid mutual funds at 5% and 6%. So, if the number of shares comes down, to that extent, EPS goes up.
Q: Is there any specific stock that you would favour as we get closer to the possibility of buyback? Approximately, how much money at all do you think the government will be able to raise?
A: I think government will raise about Rs 20,000 crore without much problem, without affecting these companies and without disturbing their debt profile too much. I think Coal India is the best case. By whatever stretch of imagination you can have, Coal India can’t use that Rs 45,000-50,000 crore it has. I think a large portion may come from Coal India. My sense is Oil India has also been sitting on the cash last four years, they don’t need that cash.