Finance Ministry asks profit making PSUs to consider stock split

Posted By: PTI
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New Delhi, Jul 24 The Finance Ministry has directed all profit making PSUs to use their surplus cash to buy back shares and pay handsome dividend, besides considering issuing bonus shares or going for stock split.

finance ministry

The Department of Investment and Public Asset Management (DIPAM) in a recent letter to Central Public Sector Enterprises (CPSEs) has asked them to pay dividend at the rate of 30 per cent of net profit or 5 per cent of the networth, whichever is higher.

"CPSEs with surplus cash have been asked to buyback shares or issue bonus shares to increase the value of government holding," said a senior official.

They have also been asked to consider share split if the book value of their shares exceeds 50 times their face value. The idea behind stock split is to encourage participation of small investors in capital markets.

High price of shares sometimes act as a deterrent for investors to invest in the company and CPSEs needs to decide, from time to time, the option of splitting shares.

State-owned companies have cash and free reserves estimated at Rs 2.6 lakh crore and the newly created DIPAM has been entrusted with the task of ensuring its optimal utilisation.

"We have been asked to shell out higher of 30 per cent of net profit or 5 per cent of net worth as dividend," he said.

An official in the finance ministry said that the idea behind the exercise is to ensure that cash does not remain idle and is utilised optimally by the PSUs who have high networth and negligible or zero leverage ratio, and whose expansion of business does not justify holding so much cash.

To assess the cash utilisation of PSUs, the government has started looking at ratios like -- return on networth, dividend to networth, profit after tax to networth.

In order to evaluate the performance of PSUs, the government has evolved 10 parameters which include capacity utilisation, leveraging networth, return on investment, technology upgradation and marketing efficiency.

While renaming the Department of Disinvestment as DIPAM in the Budget, Finance Minister Arun Jaitley had said that the department "will adopt a comprehensive approach for efficient management of the government investment in CPSEs by addressing issued such as capital restructuring, dividend, bonus shares."

Post this, DIPAM has helped exchequer garner Rs 4,500 crore through buy back of shares by cash rich Hindustan Aeronautics and Bharat Dynamincs in March.

Cash-rich mineral explorer NMDC Ltd, MOIL Ltd and aluminium major NALCO has also announced buy back of shares. This could together fetch about Rs 10,000 crore to the exchequer.


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