State-owned Oil India Ltd will buy back 5.04 crore of its shares for a little over Rs 1,085 crore as part of the government's push to cash-rich PSUs to part with their surplus either by paying higher dividends or through share buybacks so as to help meet revenue targets.
In a regulatory filing, OIL said its board has approved buyback of shares at an aggregate of no more than 10 per cent of the fully paid-up equity share capital and free reserves of the company.
The board approved "the buyback by the company of its fully paid-up equity shares of Rs 10 each not exceeding 5.05 crore equity shares (representing about 4.45 per cent of the total number of equity shares in the paid-up share capital of the company) at a price of Rs 215 per equity share payable in cash for an aggregate consideration not exceeding Rs 1085.72 crore," it said.
The nation's second large oil explorer had a little less than Rs 20,000 crore of reserves. OIL shares closed at Rs 218.78 on the BSE on Thursday. Friday was a trading holiday on account of Gurunanak Jayanti. The government is targeting a minimum Rs 5,000 crore through share buyback offers of state-owned firms like Coal India and BHEL.
Besides OIL, at least half a dozen other central PSUs have disclosed share buyback programmes. Prominent among these include NHPC, BHEL, NALCO, NLC, Cochin Shipyard and KIOCL that could fetch the government a little over Rs 3,000 crore.
The government is expected to participate in each of the share buyback programme of these PSUs. OIL said the government holds 66.13 per cent stake in the company and has offered to tender 5.04 crore shares in the buyback offer.
The Department of Investment and Public Asset Management (DIPAM), which has been set a target to raise Rs 80,000 crore for the government through stake sale in central public sector enterprises, had prodded all cash-rich PSUs to go for share buybacks.
PSUs having a net worth of at least Rs 2,000 crore and a cash balance of more than Rs 1,000 crore have to mandatorily go in for share buyback. Of the Rs 80,000 crore disinvestment target, the government has so far raised just over Rs 15,000 crore through minority stake sale in PSUs.
Explaining the rationale for the buyback, OIL said a share buyback is an acquisition by a company of its own shares with the objective to return surplus cash to its shareholders.
The buyback through the tender offer process gives an option to all the shareholders, including promoters, to receive the surplus cash by participating in the buyback, in the proportion of their shareholding. The Board of Directors, it said, was of the view that the proposed buyback will help the company to achieve the long-term benefit of optimising the capital structure and improving key financial ratios.
SBI Capital Markets Ltd is the lead manager of the issue while Cyril Amarchand Mangaldas is the legal advisor for the offer.