In a bid to boost its finances and also curtail fiscal deficit the government has sought a record dividend of Rs 19,000 crore, 5% more than the previous year, from six state-run firms.
More than half of this amount, 60%, is payable by the Oil and Natural Gas Corporation (ONGC) and Indian Oil Corporation (IOC).
The government has asked ONGC to pay Rs 6,500 crore, Indian Oil (Rs 5,500 crore), BPCL (Rs 2,500 crore), GAIL (Rs 2,000 crore), Oil India (Rs 1,500 crore) and Engineers India (Rs 1,000 crore) as dividend.
Shareholders have expectations of a certain returns on their investments and the management should try and meet that, irrespective of the annual profit.
The demand is steep given the low profits in the first half of this fiscal. All state oil companies, except Engineers India, have posted a decline in half-yearly profits during H1 FY20.
Companies fear that a higher outgo in the face of lower profits would interfere with their planned spending or force them to borrow more, raising finance costs.
Some oil companies have resisted the move citing that the government is demanding higher dividends despite reducing its stake.
The Modi government has been continuously reducing its stake in public sector undertakings to meet its disinvestment target.
Last year, ONGC and Indian Oil had to undertake a share buyback program worth Rs 9,500 crore in which the state’s shares were offloaded.
In November last year, the Cabinet approved the sale of BPCL while retaining the Numaligarh refinery under a PSU
Finally, we understand that the government is facing a severe revenue constraint and hence is looking at all resources to ensure that it meets its targets ahead of the union budget on Feb 1st, 2020.
In the near term, most government-owned PSUs stocks will be under pressure to pay dividends and this may be considered negative in the short term as most of them would require to pay this by Mar 2020.
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