scorecardIndia’s largest fuel retailer is undertaking its biggest share buyback since 2001 in order to help the central government meet its disinvestment target
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India’s largest fuel retailer is undertaking its biggest share buyback since 2001 in order to help the central government meet its disinvestment target

India’s largest fuel retailer is undertaking its biggest share buyback since 2001 in order to help the central government meet its disinvestment target
Business2 min read
(Image source- Reuters)

  • The board of the state-owned Indian Oil Corporation (IOC) has approved a plan to buy back a little over 3% of its total equity shares.
  • The fuel retailer will spend around ₹44.4 billion on the buyback plan, culminating in its largest buyback in 17 years.
  • The move also includes a dividend payout of ₹6,75 per share, resulting in a total payout of ₹65.6 billion.
  • This will result in a huge cash infusion for IOC’s shareholders, especially the central government, which holds a 54% stake in the oil firm.
On 13 December, the state-owned Indian Oil Corporation (IOC) announced in a stock exchange filing that its board had approved a plan to buy back a little over 3% of its total equity shares. India’s largest fuel retailer will spend around ₹44.4 billion on the buyback plan, culminating in its biggest buyback in 17 years.

The move also includes a dividend payout of ₹6,75 per share, resulting in a total payout of ₹65.6 billion. It will result in a huge cash infusion for IOC’s shareholders, especially the central government, which holds a 54% stake in the oil firm.

However, it could add unnecessary strain to IOC’s finances. At the end of September 2018, it had total debts of around ₹600 billion, compared with a paltry cash balance. It remains to be seen how exactly it will fund the transaction, but it will likely incur a lot more debt. This, coupled with its high capital expenditure plans in the medium term, could leave it a rather unviable position.

The impetus behind the transaction is to help the government, acting through the the Department of Investment and Public Asset Management (DIPAM), meet its disinvestment target of ₹800 billion for fiscal 2019. It has reportedly collected 68% of that amount so far this year.

The DIPAM is reportedly planning to earn as much as ₹50 billion from share buyback programmes of large state-owned enterprises energy firms like Coal India and Bharat Heavy Electricals, according to the Press Trust of India. As per a government order, all public sector enterprises with a cash balance of over ₹10 billion have to undertake share buybacks.

Last week, the government also decided to sell a 52.63% stake in infrastructure financier Rural Electrification Corp (REC) to another state-run power lender, Power Finance Corporation (PFC). However, just like IOC, the issue of debt could be a problem here. PFC will have to raise a significant amount of debt to finance the purchase, a tough ask for a firm weighted down by ₹283 billion worth of gross non-performing loans.

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