Coal India share buy-back not to affect its capex plans

Coal India has agreed to part with nearly Rs 6,000 crore from its cash reserves of over Rs 38,000 crore for a share buy-back mooted by the finance ministry after ensuring that its capex plans to up production would not be impacted.

Officials in the company said, so far, four of its subsidies has agreed to a share buy-back.

South Eastern Coalfields (SECL), a major Coal India subsidiary will be contributing to the tune of 1,200.19 crore as its board has approved the buyback of 8,46,359 fully paid equity shares of face value of Rs 1,000 each. This represents a 23.53% of the total number of equity shares in the paid-up share capital of the company.

Mahanadi Coalfields (MCL), another key subsidiary is coughing up Rs 1,028.77 crore as it will be buying back 4,43,973 fully paid equity shares of face value of Rs 1,000 each on a proportionate basis through tender offer.This represents a 23.82% of the total number of equity shares in the paid-up share capital of the Company.

The other two subsidiaries – Northern Coalfields (NCL) and Western Coalfields (WCL) will be contributing Rs 948.72 crore and 789.30 crore respectively in the buyback move.

Together, so far, these four subsidiaries will be contributing Rs 3,966.98 crore in the estimated Rs 6,000 crore buyback of Coal India shares.

“The other four subsidiaries will decide and get back to us with their buy-back proposal shortly. Each of them will be evaluating the cash reserve, profitability and the equity shares position individually”, a senior Coal India official said.

Coal India’s cash reserves are spread across its subsidiaries and their board’s consent is needed to carry forward the government’s proposal.

As per the official, this buyback will not have any impact on the future plans of Coal India’s capital expenditure (capex). Back in September 2015, the Maharatna company had worked out a capex plan of Rs 57,000 crore over a period of five years to propel growth in output which was to be partly funded by its cash reserves. However, with the government making its move to pump out part of the reserves to drive growth in other sectors, the overall reserves are likely to decline.

“We have ensured following the meeting with the government that our growth plans are not stalled or impacted in any way”, the key Coal India official added.

The tentative capital investment projections for FY17 is Rs 8,282 crore while for FY18 and it is Rs 14,539 crore. For the FY19 cycle, Rs 14,653 crore has been planned to be spent on improving mining and evacuation activities while another Rs 13,529 crore has been earmarked for FY20 period.

Under the share buy-back programme, Coal India will be purchasing around 2-3% of its shares from the government – a move which will help the centre move an inch closer to the Sebi guidelines.

Sebi guidelines have stated the public should hold 25% in state-owned listed companies by August 2017. Currently, the President of India holds 79.65% in the company resulting in the public having access to only 20.35% of the shares.

The buy-back will not just reduce the stake of the government, it will also prepare the ground for the 10% additional planned disinvestment in the world’s largest coal miner.