Government intends to further loosen its control of the coal sector by further diluting its interest in the public sector of coal major Coal India Ltd (CIL).
Government sources argued that up to 15% of the government’s share in CIL could be sold under the Offer for Selling Route (OFS) this year to mobilize close to Rs 12,000 crore as disinvestment proceeds at the current share price on the stock exchange.
However, if the extension of the COVID-19 pandemic produced poor market conditions, the government could ask CIL to buy back its shares at reasonable valuation.
The Government is looking to loosen its grip on CIL, as it is carrying out major reforms in the coal sector by opening it up to competition from the private sector, which will now be granted the right to commercially extract coal. In this climate, the government wants CIL to become a more professionally run business with limited government involvement.
Government currently holds a 66.13% interest in CIL. If the proposal for the selling of 15% of government equity is carried out, the holding of the Center in the company will fall to just around 51%, while the selling of equity will make it richer by more than Rs 12,000 crore.
CIL previously sold 10% of its shares in January 2015 and raised Rs 22,550 crore. But, with coal prices falling worldwide in the absence of any pick-up in demand, the company’s share prices also decreased and reduced key capitalization.
Even in FY21, the COVID-19 pandemic disturbed the government’s disinvestment plan. A very ambitious disinvestment target for Rs 2.01 lakh crore has been set for the current year. Yet with the program making little progress in the first quarter of the current fiscal year and things still looking complicated, meeting the goal seems unlikely.
As a result , the government is planning a list of cash-rich PSUs with large reserves that can be used to fulfill the government’s disinvestment goal. If the market selling of government shares is difficult in the current climate, these companies may be required to use their respective funds to buy back government shares.
