Mahanadi Coalfields approves Rs1,617 crore share buyback plan
The value of the share buyback by Coal India subsidiary Mahanadi Coalfields is almost Rs600 crore more than it had agreed to release in June last year
Kolkata: The board of Mahanadi Coalfields Ltd has agreed to release Rs1,617.06 crore in cash through a share buyback, almost Rs600 crore more than it had agreed to release in June last year, Coal India Ltd (CIL) said on Wednesday.
With its third wholly owned subsidiary agreeing to buy back shares, Coal India is set to receive Rs4,061.37 crore in cash, which it is expected to distribute among its shareholders.
Two other subsidiaries—Northern Coalfields Ltd and South Eastern Coalfields Ltd—have since Friday agreed to release cash from their coffers.
Mahanadi Coalfields will buy back 55,327 shares, representing 2.97% of its equity capital, for Rs292,273 each, valuing itself at Rs54,446.5 crore.
Like the two other Coal India subsidiaries before it, Mahanadi Coalfields too has sharply raised its valuation from June last year.
In June, Mahanadi Coalfields had proposed to buy back 443,973 shares, or about 23.82% of its equity capital, for Rs23,171.89 each, to pay in all Rs1,028.77 crore. At that price, the Coal India subsidiary had valued itself at Rs4,319 crore.
In June last year, five Coal India subsidiaries had agreed to release surplus cash, and all of them had priced their proposed buybacks at book value per share, which is derived from the acquisition cost of assets, Coal India officials had said earlier.
However, this time the three subsidiaries have valued themselves on the strength of their balance sheets and business potential.
Northern Coalfields has valued itself at Rs28,950 crore, compared with Rs4,194 crore in June last year, while South Eastern Coalfields has ratcheted up its valuation from Rs5,100 crore to Rs28,712 crore. While these two raised their valuations five- and seven-fold, Mahanadi Coalfields has raised by it by as much as 12-fold.
In July last year, Coal India decided to launch a buyback to release cash for the government, which currently owns 79.65%, and other shareholders. It paid out Rs3,650 crore by the end of October but chose not to dip into the cash reserves of its subsidiaries at that time. At that time, the five subsidiaries together had offered to pay Rs5,095 crore.
The change in valuation may have long-term implications for the state-controlled mining behemoth, officials had earlier said, but they declined to make any further comments until the Coal India board had decided upon the buyback offers made by the subsidiaries.
The board of Coal India is slated to meet on Monday to decide on an interim dividend.
According to an investment banker, who spoke earlier on condition of anonymity, the spike in valuation has no material implication for Coal India, but it will create more flexibility for the company to release surplus cash from its subsidiaries in the next financial year.
A key Coal India official had said on Saturday that the company was taking out cash from its subsidiaries to comply with a government directive from last year to make more cash available to the national exchequer.
These are “small payouts” compared with Coal India’s consolidated cash reserve of Rs38,312 crore (at the end of March 2016) and will not impair its plans for expansion, this official had said, asking not to be identified.
On Saturday, the boards of Western Coalfields Ltd and Central Coalfields Ltd are to meet to decide on a similar buyback, according to a key Coal India official.
Western Coalfields may, however, decide not release any cash immediately, this person said on Wednesday, asking not to be identified. When contacted, Central Coalfields chairman R.R. Mishra declined to comment.