Capital restructuring norms for CPSEs updated to add value

It directed them to cough up an annual dividend of at least 30% of their net profit or 4% of their net worth, whichever is higher. As per the earlier norms, the dividend payment requirement was 30% of the profit after tax or 5% of net worth, whichever was higher.

The latest norms, however, specify that financial sector CPSEs like non-banking financial companies need to pay a minimum annual dividend of 30% of their profit after tax, subject to any limit under any extant legal provisions, according to the revised guidelines issued by the Department of Investment and Capital Asset Management (DIPAM). There was no separate directive for financial sector CPSEs in the guidelines issued in 2016. Any exemption from this requirement has to be sought from the finance ministry.

The revised guidelines would further boost the value of the CPSE and total returns for the shareholders while leaving them with more operational and financial flexibility to improve their performance. It would also encourage more investors to participate in the CPSE value creation, a strategy that the government has been pursuing in recent years.

The revised guidelines will be applicable from the current fiscal.

Buybacks and share splitsDIPAM also stipulated that CPSEs–whose share price has been less than the book value consistently for six months, and have a net worth of at least ₹3,000 crore and cash and bank balance of over ₹1,500 crore–may weigh buying back their shares.Every CPSE needs to consider issuing bonus shares when its defined reserves and surplus are equal to or more than 20 times the paid-up equity share capital, it said.

Any listed CPSE, whose market price exceeds 150 times its face value consistently for six months, may consider splitting off its shares.

There should also be a cooling-off period of a minimum of three years between two successive share splits.

The revised norms would also apply to subsidiaries, where the parent CPSE owns more than a 51% stake.

An inter-ministerial forum called Committee for Monitoring of Capital Management and Dividend by CPSEs, chaired by the DIPAM secretary, will take up for discussion issues regarding capital management or restructuring of CPSEs.

The latest guidelines won’t apply to state-run banks, insurers and also to the body corporate that is barred from distributing profits to its members, like those set up under section 8 of the Companies Act.