In a move that would help the government meet its disinvestment target, state-owned Oil India Ltd will buy back Rs 5.04 crore of its shares for a little over Rs 1,085 crore. The government has been pushing public sector companies to share their surplus funds either through payment of higher dividends or through buyback of equity shares.
In a filing to stock exchanges Friday, Oil India said its board has approved buyback of shares at an aggregate of no more than 10 per cent of the fully paid-up equity share capital and free reserves of the company. The board approved “the buyback by the company of its fully paid-up equity shares of Rs 10 each not exceeding 5.05 crore equity shares (representing about 4.45 per cent of the total number of equity shares in the paid-up share capital of the company) at a price of Rs 215 per equity share payable in cash for an aggregate consideration not exceeding Rs 1085.72 crore,” it said.
OIL shares closed at Rs 218.78 on the Bombay Stock Exchange on Thursday. Friday was a trading holiday on account of Gurunanak Jayanti. Oil India said the government holds 66.13 per cent stake in the company and has offered to tender 5.04 crore shares in the buyback offer. The Department of Investment and Public Asset Management (DIPAM), which has been set a target to raise Rs 80,000 crore for the government through stake sale in central public sector enterprises, had nudged all cash-rich PSUs to go for share buybacks. Apart from Oil India, ONGC and Indian Oil Corp (IOC) are two other companies in the sector identified by the DIPAM for share buyback of 5 per cent each. Oil & Natural Gas Corp (ONGC) has recently told the finance ministry that it would either buy back government shares in the company or pay interim dividend. Not both, as it needs time to build a corpus for the payout.
PSUs having a net worth of at least Rs 2,000 crore and a cash balance of more than Rs 1,000 crore have are required to pursue share buybacks. Of the Rs 80,000 crore disinvestment target, the government has so far raised just over Rs 15,000 crore through minority stake sale in PSUs.
The buyback through the tender offer process gives an option to all the shareholders, including promoters, to receive the surplus cash by participating in the buyback, in the proportion of their shareholding. The Board of Directors, it said, was of the view that the proposed buyback will help the company to achieve the long-term benefit of optimising the capital structure and improving key financial ratios. SBI Capital Markets Ltd is the lead manager of the issue while Cyril Amarchand Mangaldas is the legal advisor for the offer.