Revised Guidelines for Capital Restructuring by CPSEs Released

The Finance Ministry’s Department of Investment and Public Asset Management (DIPAM) has released the revised guidelines on capital restructuring of central public sector enterprises (CPSEs). Comprehensive guidelines (OM No. 5/22016-Policy dated 27.5.2016) were issued in May 2016 along with subsequent advisories to enable CPSEs to address concerns such as leveraging of assets for fresh investment, capital restructuring, financial restructuring, etc. The evolution in the capital market conditions, the requirement of operational flexibility and such other matters necessitated a review.

The revised guidelines mandate every CPSE to pay a minimum annual dividend of 30% of PAT or 4% of the net-worth, whichever is higher. Although financial sector CPSEs like NBFCs are given the option of paying a minimum annual dividend of 30% of PAT. As far as buy-back of shares are concerned, CPSE, whose market price of the share has been less than the book value constantly for the prior six months and has a net-worth of at least Rs. 3000 crore and a cash & bank balance of over Rs. 1500 crore may consider the option to buy-back their shares.

Further, every CPSE may consider issuing bonus shares when its defined reserves and surplus are 20 times of its paid-up equity share capital. In addition, where the market price exceeds 150 times its face value consistently for six months, the CPSE may consider splitting off its shares. However, there should be a cooling-off period of three years between two successive share splits.

The guidelines are not applicable to unlisted CPSEs unless there is a proposal to list them. Subsidiaries of CPSEs with more than 51% shareholding by the parent CPSEs, need to follow these guidelines, however, proposals for exemptions may be sent to the department.