Coal India units agree to buy back shares, but ratchet up valuations
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kolkata: After Northern Coalfields Ltd, the board of South Eastern Coalfields Ltd on Monday agreed to pay Rs1,200 crore to Coal India Ltd by way of a buyback of shares, but both the wholly owned subsidiaries have substantially ratcheted up their own valuations from June last year when they had first agreed to release cash from their coffers.
South Eastern Coalfields on Monday said it will buy back 150,443 shares, representing 4.18% of its equity capital, for Rs79,777 each, or Rs1,200.19 crore in all. The Coal India subsidiary has valued itself at Rs28,712 crore compared with Rs5,100 crore in June last year when its board had agreed to buy back 846,359 shares, or 23.53% of equity capital, for Rs14,180.57 each.
Earlier, Northern Coalfields did the same thing. On Friday, the company agreed to buy its own shares for Rs1,62,937 apiece, compared with Rs23,610.04 each in June last year. It has thus revised its valuation from Rs4,194 crore to Rs28,950 crore.
Whereas South Eastern Coalfields has kept the total payout through the buyback unchanged at Rs1,200.19 crore, Northern Coalfields has raised it from Rs948.72 crore in June to Rs1,244.12 crore now. The buyback will contract its equity base by only 4.3%, whereas at June valuation it would have shrunk by 22.62%.
Two senior officials at state-owned Coal India said the subsidiaries had previously agreed to conduct the buyback at the more conservative book value per share, which is derived from the acquisition cost of assets.
But this time, the subsidiaries have got themselves valued through external agencies on the basis of their business potential and the strength of their balance sheets, according to the officials, who asked not to be identified.
The subsidiaries are setting “new benchmarks” for themselves, said a leading investment banker, who also declined to be named. Because of the higher valuations, the contraction in their equity base will be lower than what was proposed last year. “This, in turn, will give them more flexibility to release more cash next year,” this person added.
Successive offers for buybacks have to be at least six months apart, and companies are not allowed to buy back more than 25% of their equity capital in any fiscal year under Indian securities market regulations.
“The change in valuations may have future implications, but we cannot discuss them until the CIL board has weighed them and agreed to the (buyback) offers made by the subsidiaries,” said one of the Coal India officials cited above, adding that several investors have raised questions about the change in valuations.
The board of Mahanadi Coalfields is to consider a similar proposal for a buyback of shares on Tuesday. In June last year, it had agreed to pay Rs1,028.77 crore.
Previously, two other subsidiaries—Western Coalfields Ltd and Central Coalfields Ltd—had agreed to release cash for Coal India to distribute among its shareholders, and together, the five firms had agreed to cough up Rs5,095 crore.
But in early July, the Coal India board decided to launch its Rs3,650 crore buyback of shares with its own reserves without dipping into the accumulated cash of its subsidiaries. The cash being taken out by the state-run coal producer now is expected to be distributed among its shareholders by way of a special dividend. Its board is to meet on 6 March to decide.