Gujarat PSU shares rally on new policy for dividend, bonus shares

Gujarat PSU shares shoot up as state govt trumpets new policy on dividend, bonus shares

Shares of most public sector companies in Gujarat rallied 8-15 percent on April 26 after the state government unveiled a policy for minimum levels of dividend distribution and bonus shares for PSUs.

Gujarat Industries Power Co Ltd and Gujarat Mineral Development Corp Ltd surged as much as 20 percent, Gujarat State Fertilisers & Chemicals Ltd 18 percent, Gujarat Alkalies & Chemicals Ltd rose 14 percent, Gujarat Narmada Valley Fertilizers & Chemicals 10 percent, Gujarat Cotex gained 12 percent, and Gujarat Craft Industries gained 10 percent intraday on April 26.

With this new policy of compulsory dividends and bonus shares, the state aims to add to the valuations of Gujarat PSUs. All seven listed PSUs of of the state are making profits.

Gujarat has mandated a minimum of 30 percent of net profit, or 5 percent of net worth, whichever is higher, to be a minimum level of dividend declared for shareholders. However, only the minimum level and maximum permissible level of dividend should be declared.

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For share buyback, every state PSU with a net worth of at least Rs 2,000 crore and cash and bank balance of Rs 1,000 crore have been mandated to exercise the option to buy back their own shares. In the case of bonus shares, state PSUs that have defined reserve and surplus equal to or more than 10 times their paid-up equity share capital are required to issue bonus shares to their shareholders.

In the case of splitting of shares, Gujarat has mandated that where the market price or book value of a state PSU shares exceeds 50 times of its value, provided its existing face value of a share is more than Re 1.