Coal India buyback can cut fiscal deficit by 10%: FII view

Coal India's possible share buyback has been under the scanner lately. Although many have panned the idea, Oscar Veldhuijzen of The Children's Investment Fund Management said that the buyback is a win-win situation. "It would improve the value per share in Coal India and would also reduce the fiscal deficit by as much as 10%," he said.

Coal India is sitting on Rs 54,000 crore of net cash which is equivalent of 25% of their market cap. "And, the best investment Coal India can make is to buyback shares its own shares since it would increase the value per share and therefore, increase the government stake effectively," he explained. Further, he added that the share buyback would assist the government to meet divestment target of Rs 40,000 crore. Below is an edited transcript of Oscar Veldhuijzen's interview to CNBC-TV18. Also watch the accompanying video. Q: Are you supportive of a buyback from Coal India? A: We are extremely excited that the idea has been offered to force or to allow Coal India to buyback shares from the government which could happen through tender offer. Coal India is sitting on Rs 54,000 crore of net cash which is equivalent of 25% of their market cap. They generate sufficient free cash flow to make all the necessary investments in order to expand production and hence, they should distribute all cash to shareholders and of course the government is the largest shareholder, which means effectively that the people of India and the government benefits the most. According to our calculations, if Coal India were to use all of its cash to buyback shares it could actually reduce fiscal deficits by as much as 10%, which is of course substantial. Coal India is not a bank and has no need to sit on cash and therefore again think that it