Public sector firms may be asked to buy back govt equity | business | Hindustan Times
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Public sector firms may be asked to buy back govt equity

The government may allow public sector companies to buy back equity as sliding growth, rising inflation, volatile markets and an uncertain global economy threaten to take the wind out of sails of the planned disinvestment programme in the current year. HT reports.Miles to go

business Updated: Sep 29, 2011 02:09 IST
HT Correspondent

The government may allow public sector companies to buy back equity as sliding growth, rising inflation, volatile markets and an uncertain global economy threaten to take the wind out of sails of the planned disinvestment programme in the current year.

"There are other options," said R Gopalan, secretary, economic affairs. "There can be equity shrinkage. Many, many possibilities are still there. Our aim is to achieve Rs 40,000 crore (disinvestment target)."http://www.hindustantimes.com/images/HTPopups/290911/29-09-11-buss23.jpg

The government has set a disinvestment target of Rs 40,000 crore the current year, but has so far been able to raise only Rs 1,100 crore by divesting equity in Power Finance Corporation.

Companies buy back shares either to increase the value of shares still available (reducing supply), or to eliminate any threats by shareholders who may be looking for a controlling stake. A buyback allows companies to invest in themselves.

By reducing the number of shares outstanding on the market, buybacks increase the proportion of shares a company owns.

Last year, the government earned Rs 22,763 crore from the sale of equity in public sector enterprises, against the targetted Rs 40,000 crore.

The government was banking heavily on disinvestment proceeds and additional revenue of telecommunication licence and spectrum fee to bolster its balance sheet with nearly 40% of its non-tax revenues expected to come in from these two sources.

The government has estimated to earn Rs 180,455 crore from non-tax sources, of which Rs 69,648 crore is expected to come in from telecom revenues and stake sales in PSUs.

With the 2G spectrum controversy snowballing into a raging political controversy and choppy markets scaring away foreign investors from stock markets, the chances of achieving government's non-tax revenue targets appear bleak.