CIL subsidiary refuses share buyback over valuation row

As Coal India Ltd (CIL) gears up for investment roadshows in overseas markets including Hong Kong and Singapore beginning tomorrow, the public sector major has suffered a major embarrassment due to a faux pas over the share buyback programme by its subsidiaries.

While valuation exercises for the shares of three of its mining subsidiaries were found to be erroneous, that swelled the value of each shares many times more, another of its subsidiary, Central Coalfields, has refused to execute the buyback of its shares.

Central Coalfields has told its parent, CIL, that it would not execute the buyback proposal valued at Rs 1,001 crore approved by its Board.

"The Board of Directors of CCL at its meeting held on March 10 have after reviewing the limited reviewed unaudited financials of the company ended December 31, 2016, based on the Revised Valuation Report submitted by Merchant Banker, decided not to proceed with the proposed buyback," CIL has informed the exchanges.

The development closely follows three other subsidiaries -- Northern Coalfields, Mahanadi Coalfields and South Eastern Coalfields – going for revision in prices at which they would buy back shares from CIL.

This would be another embarrassment in front of investors CIL would be addressing this week as the revisions in the valuation of the shares have been significant, indicating a major flaw in the valuation exercises.

To illustrate, the valuation of the shares of South Eastern Coalfields have been revised from an earlier Rs 79,777 to just Rs 19,699.47 a share.

Such difference occurred because shares of the subsidiaries were now based on the book value basis, a normal exercise in case of an unlisted entity as against a notional market price basis as was done earlier, sources said.

All the three subsidiaries, while revising their prices, however, have kept the potential outflow following the buyback at the same aggregate value.

For South Eastern Coalfields, for example, it has been keep at the same level of Rs 1,200 crore, meaning the quantum of shares to be bought back has been revised upwards from 1.50 lakh shares to 6.09 lakh shares.

These three subsidiaries, however, would continue with their revised buyback programme while Central Coalfields has opted out.