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Buyback on SAIL agenda

New Delhi Feb. 20: Steel Authority of India Ltd is likely to place a resolution before its board next week, seeking to use part of its Rs 17,747-crore reserves to buy back 5 per cent of its shares from the market next month.

The buyback will help the government to meet part of its divestment target of Rs 30,000 crore for this fiscal.

The move follows a decision to put off the finance ministry’s divestment bid in the steel major following disappointing quarterly results and stock market turmoil.

The government, which holds an 85 per cent stake in the steel giant, will have the right to sell 17.51 crore shares of the 20.6 crore shares which are likely to be bought back.

Top steel ministry sources said SAIL chairman C. S. Verma held a series of meetings with the ministry top brass today. With SAIL shares trading around Rs 79, analysts expect the steel behemoth to buy back shares at Rs 80-90 a share. This could fetch the government Rs 1,400-1,575 crore.

The cabinet had given an in-principle nod to the buyback plans of a select band of PSUs in March last year, and subsequently SAIL had taken an in-principle approval from the shareholders in September.

Public sector units, including Coal India, ONGC, NTPC and several banks, hold more than Rs 1,80,000 crore in reserves.

Attempts by the finance ministry to goad them into giving special dividends or into buying back shares have met with resistance from the PSU boards who prefer to keep their reserves intact for expansion.

SAIL too has an ambitious expansion-cum-modernisation plan of Rs 74,000 crore spread over several years.

The steel giant feels its cash flows will allow it to pay for the expansion without disturbing its balance sheet too much. However, many fear the expansion programme can see SAIL piling up debt without a commensurate increase in profits, similar to what happened in the 1990s.

The government seems to have put off its earlier plan to sell a 10.82 per cent stake in SAIL to bring down its holding to 75 per cent and earn about Rs 4,000 crore.

Differences over valuations with merchant bankers and fears that the sale of SAIL stock at low prices could result in a political outcry have held up the equity offering.

SAIL reported a profit after tax of Rs 484 crore for the quarter ended December 31, 2012 against Rs 632 crore in the year-ago period.

 
 
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