Govt revises norms on dividend payment by PSUs

The Department of Investment and Public Asset Management has revised guidelines on capital restructuring of central public sector enterprises (CPSEs) to address the critical interlinked issues such as leveraging of assets for fresh investment, capital or financial restructuring and other matters. The guidelines stipulate eligibility conditions for CPSEs for payment of dividend, buy-back of shares, issue of bonus shares and splitting of shares.

Dividends from CPSEs form an important component of non-tax receipts. Every CPSE would pay a minimum annual dividend of 30% of profit after tax or 4% of the net worth, whichever is higher. Financial sector CPSES like NBFCs may pay a minimum annual dividend of 30% of PAT.

A predictable and staggered dividend regime would enable CPSES to avoid end-loading of annual payments by freeing up resources payable during the last quarter, the government says.

Payment of dividend at regular intervals helps to revive investor interest and improve market sentiment for CPSE stocks, as regular dividend attracts investors to CPSE stocks and retain them in the hope of a future dividend.

“Further, bunching of interim dividend payouts by listed CPSEs in February-March may compete with their cash availability for year-end payments to suppliers as well as towards advance tax. ln view of this, these CPSEs may consider paying interim dividend every quarter after quarterly results, or at least twice a year,” the government says.

“All listed CPSEs should consider paying at least 90% of projected annual dividend, in one or more instalments as explained above, as interim dividend. The final dividend of last FY may be paid soon after the AGM is over in September of every year in cases where the interim dividend has not been already paid out fully during the last FY and there is a balance to be paid out as final dividend,” it says.

On buybacks, repurchase by a company of its shares from the existing shareholders that reduces the number of its shares in the open market, the government says CPSES may consider buyback of their shares to make proper utilisation of idle cash and to improve investors' confidence in the company which is likely to help the company to raise capital in future when it requires funds for expansion.

CPSE, whose market price of the share is less than the book value consistently for the last six months, and having net-worth of at least ₹3000 crore and cash and bank balance of over ₹1,500 crore may consider the option to buy back their shares, the revised norms say.

Proposals were also received from some CPSEs to modify some of the provisions of the existing guidelines given the changes in market conditions, company financials, and requirements of operational flexibility. After due deliberations and consultations with stakeholders, it has now been decided to modify certain provisions of the existing Guidelines on Capital Restructuring of CPSEs, says DIPAM.

The government says value creation in the CPSEs is being prioritised through a balanced policy of capital management of CPSEs based on dividend pay-outs, buy-back, bonus shares, splitting of shares and improving the performance and efficiency of the CPSES with reference to key parameters such as CAPEX, EBIDTA, Return on net-worth or Return on Capital Employed, Asset Turnover Ratio, and other financial ratios. CPSEs are advised to strive paying a higher dividend taking into account relevant factors such as profitability, capex requirements with due leveraging, cash reserves and net worth.