Govt to amend articles of association for PSU share buyback

The government is clearing the decks for the buyback programme. The government is looking to amend the articles of association (AoA) of public sector units for share buybacks.

The draft cabinet note for inter-ministerial consultations has three to four key points. One is the AoA amendment will be starting point for any buyback or cross holding deal that may happen as the government proposes. That, therefore, will take some time and the underlying sentiment is that the government has no fixed timeline for the buyback which is now an alternative to the earlier existing strategy of FPOs.

In effect the guidelines with respect to investment not just the AoA but regarding investment of surplus by PSUs will be modified because there are no guidelines as to what needs to be done. Core group of secretaries in disinvestment will be set up that will oversee the entire policy implementation process. Infact post the cabinet decision which is expected in two weeks time will actually try and fast track each and individual process.

One clear condition, in no case under any sort of arrangement of buyback or a crossholding deal will the government's equity fall below 51%. So, the majority character of ownership vesting with the government will continue to be maintained in this alternative strategy for disinvestment.

As of March 2011, as per the government analysis, the finance ministry analysis concluded that the cash and bank balances of 26 out of  50 identified central PSUs which can be eligible for such deals going forward is Rs 1 lakh 58 thousand crore.

The EGoM will continue to approve the share buyback process. There is an existing EGoM, headed by Finance Minister Pranab Mukherjee which normally looks at FPO price approvals will continue to exist.

Additionally, there is a possibility and an option that is being written down, mentioned in print about LIC and public sector banks entering into off market deals to get all of this in place. So once this approval happens the government will embark fully on its alternative disinvestment strategy.