Rs 16.6k-crore payout to erase 44% net worth of CIL

Coal India (CIL) may part with about 43 per cent of its cash reserves, effectively eroding the company’s net worth by 44 per cent, while paying out its interim dividend on Wednesday. The world’s largest coal miner would be stretching itself in a bid to implement Department of Investment and Public Asset Management (DIPAM) guidelines in the dividend payout.

While DIPAM guidelines, which CIL is implementing this year, mandate a minimum five per cent of its net worth or 30 per cent of its net profit be given out as dividend, the coal behemoth, according to company estimates, is expected to pay a Rs 16,600-crore interim dividend. In this case, this amount will mean a decline of 44 per cent in its net worth or a payout of 2.6 times its net profit — both far exceeding the minimum benchmark of the DIPAM guidelines.

According to CIL officials, the company’s cash reserves are estimated at around Rs 38,000 crore and analysts said the company’s net worth stood at Rs 37,300 crore as of September 30, 2016.

The cash reserves exceed the company’s net worth as CIL sets aside an amount of Rs 4,387 crore for a mine closure plan. “The payout will not much affect CIL’s operations as it is very cash-rich. Besides, shareholders expect a 12 per cent return on equity,” an analyst with brokerage firm, Motilal Oswal told Business Standard. CIL, as interim dividend, will pay Rs 18.75 per share, which has a face value of Rs 10.

The Centre, with its 79.11 per cent stake, is poised to receive Rs 13,132.26 crore while the Central Public Sector Enterprise Exchange Traded Fund (CPSE ETF) will receive Rs169.32 crore. The public shareholders, who have a 19.87 per cent stake, will be eligible for Rs 3,298.42 crore.

According to a senior CIL official, the dividend is being funded 90 per cent by its subsidiaries while the rest 10 per cent outgo will happen from its own reserves. Thus, of the total estimated dividend payout, the subsidiaries are expected to contribute a total of Rs 14,940 crore, which has been raised by a mix of share buybacks and dividend paid by subsidiaries.

Mahanadi Coalfields, which is buying back 24.24 per cent of its equity and thereby releasing Rs 1,617.06 crore from its coffers to fund the interim dividend, is the closest to meet the DIPAM guidelines. It is followed by Northern Coalfields, which is buying back 23.14 per cent of its shares and paying Rs 1,244.12 crore to its mother company, CIL.

South Eastern Coalfields Ltd, the largest subsidiary is however, buying back 16.94 per cent of its shares and paying Coal India Rs 1,200.19 crore. Central Coalfields Ltd (CCL), which had earlier consented to a buyback, later opted to fall out after revaluating itself by a merchant banker. Together, through the final buyback process, Coal India will fund 24.5 per cent or Rs 4,061.37 crore of the dividend amount via buybacks.

“The subsidiaries are also paying us dividend, which will fund the interim dividend payout,” a senior Coal India executive told Business Standard, adding that although CCL had opted out of the buyback, it will pay dividend to Coal India to fund the process on Wednesday.

According to estimates, the subsidiaries together are raising Rs 10,878.63 crore as the dividend payable to Coal India which will finally be disbursed to the company’s shareholders. The balance Rs 1,660 crore for the interim dividend is being arranged internally by Coal India.

According to the official quoted earlier, the payout will result in an immediate shrinkage of 43 per cent in Coal India’s consolidated cash reserves of Rs 38,000 crore, the majority of which is held by its subsidiary companies.

The analyst with Motilal Oswal cautions that with a massive dividend payout this time, Coal India, in the next financial year may not be able to pay another hefty dividend which exceeds the current sum.