Govt issues revised capital restructuring norms for CPSEs on share buybacks, dividends & bonus issue

The Finance Ministry on Monday came out with revised guidelines for capital restructuring by CPSEs, mandating them to pay a minimum of 30 per cent of net profit or 4 per cent of the net worth, whichever is higher as an annual dividend.

As per the guidelines issued by the Department of Investment and Capital Asset Management (DIPAM), financial sector CPSES like NBFCs may pay a minimum annual dividend of 30 per cent of PAT subject to the limit, if any, under any extant legal provisions.

In the earlier guideline issued in 2016, the dividend payment requirement was 30 per cent of profit after tax (PAT) or 5 per cent of net worth, whichever is higher. Besides, there was no separate mention of financial sector CPSEs.

The revised guidelines also said CPSEs, whose market price of the share has been less than the book value consistently for the last six months, and have a net worth of at least Rs 3,000 crore and cash and bank balance of over Rs 1,500 crore may consider the option to buy back their shares.

It further said that every CPSE may consider issuing bonus shares when its defined reserves and surplus are equal to or more than 20 times its paid-up equity share capital.

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

Further, there should be a cooling-off period of at least three years between two successive share splits.

The guidelines will also apply to subsidiaries of CPSEs, where the parent central public sector enterprise holds more than 51 per cent stake.

All issues regarding capital management or restructuring of CPSEs will be discussed in the lnter-Ministerial forum called Committee for Monitoring of Capital Management and Dividend by CPSEs (CMCDC) chaired by Secretary DIPAM, the guidelines said.

These guidelines do not apply to public sector banks, public sector insurance companies and also to the body corporate, which is prohibited from distributing profits to its members like companies set up under section 8 of the Companies Act.

The guidelines shall be applicable from the current financial year 2024-25.

The revised guidelines further said that these CPSES may consider paying an interim dividend every quarter after quarterly results, or at least twice a year.

It also mandated all listed CPSEs to pay at least 90 per cent of the projected annual dividend in one or more instalments as interim dividends. The final dividend of the last fiscal may be paid soon after the AGM is over in September of every year.

"Unlisted CPSEs may pay a dividend once in a year as final dividend based on previous year audited financials," the guidelines said.

The revised guidelines, DIPAM said, would enhance the value of the CPSE and total returns for the shareholders and also improve the performance and efficiency of CPSEs by providing them with more operational and financial flexibility. It would also enable more investors to participate in value creation by CPSEs.