Coal India Board Approves Plan To Buy Back 108.9 Million Shares

Kolkata: On Monday, Coal India Ltd’s board approved a proposal to buy back 108.9 million shares for Rs 335 each, spending a total of Rs 3,650 crore.

This marks a deviation from the state-controlled miner’s earlier plan of raising cash from its seven wholly-owned coal-producing units by getting them to buy back their shares from Coal India. The boards of five of its subsidiaries had already agreed to release cash to Coal India. To be sure, it would have increased transaction costs at a time when Coal India didn’t immediately have to boost its cash reserve to buy back shares. Also, if Coal India, the holding firm, needs a cash injection from its units, it can have its shares bought back by them separately—the two didn’t have to be combined, said the official cited above.

The price offered for the buyback represents a 4.5 percent premium over Monday’s closing price of Coal India’s shares. They closed on BSE at Rs 320.50 each, gaining 2.84 percent, while the benchmark Sensex jumped 1.84 percent.

On Monday, a considerable amount of time was spent on the pricing of the buyback, officials said. The buyback will result in a contraction of Coal India’s paid up capital by 1.7 percent, but that might not have much impact on its free float—or the shares available for trading.

For Coal India, a buyback is a better way of rewarding its shareholders than paying a special dividend, according to former chairman and managing director Partha Bhattacharya. It will shore up the firm’s profit per share going forward, he said.

The buyback will primarily benefit the Union government, which owns 79.65 percent of Coal India’s shares. The Life Insurance Corp. of India Ltd is the second biggest shareholder with 5.86 percent; the rest is widely held.