India: With revenue constrained, government may look at PSUs for higher dividends

• The Union government may look towards its cash-rich public sector undertakings and those falling behind on their capex plans for current fiscal to declare higher dividends this year to reward their shareholders in this difficult period of Covid-19 pandemic.
• Officials sources said that the PSUs with stock prices higher than their book values and those with sufficient cash may be asked to shell out higher dividends in FY21. A call will be taken after the 4Q20 results of companies are declared in Jan 21 or Feb 21.
• Also, PSUs, particularly in the oil sector, which are set to make big inventory gains due to firming up of crude prices, may also be looked at for higher interim dividends or special dividends and a few may even be considered for share buyback, depending on market conditions.
• In a recent review meeting, the Finance Ministry had asked all central PSUs to step up their investment and complete 75% of FY21 capex by Dec 20 and more than 100% by Mar 21.
• The idea is to increase the capital expenditure in order to strengthen the country’s industrial growth that has slowed down in the Covid-19 period. But if the targets are not achieved, sources said, money should reach the exchequer in the form of dividends or any other instrument.
• Dividends from non-financial PSUs have been budgeted at INR657.5bn in FY21. As per the guidelines issued by disinvestment department DIPAM, every CPSE is required to pay a minimum annual dividend of 30% of PAT or 5% of the net worth, whichever is higher.
• While the government is looking at its PSUs for investments and dividend, the companies are finding it difficult to meet capex targets, given the financial and project implementation constraints.
• Officials of a few PSUs said that Covid-19 had severely dented the demand and slowed implementation of projects. Consequently, there is a already strain on their resources that would get further heightened if additional dividends were to be paid.
• Several PSUs in power and mining space have completed just about 40% of their annual capex by Nov 20 due to constrained business environment.

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