PSU stocks jump up to 6% after government revises dividend, bonus issue norms for CPSEs

Shares of leading state-owned companies rallied up to 6% on Tuesday, November 19, after the Union government revised its guidelines regarding the capital restructuring of central public sector enterprises (CPSEs) after a gap of eight years.

The new guidelines have reset the eligibility conditions for central public sector undertakings (PSUs) for the payment of dividends, buyback of shares, issue of bonus shares and share splits.

After the announcement of new norms, shares of state-run companies like Indian Railway Finance Corp Ltd (IRFC) gained as much as 6.3%, REC was up 4.9%, Rail Vikas Nigam Ltd (RVNL) rallied 4.5%, Bharat Heavy Electricals Ltd (BHEL) jumped 4.7%, Power Finance Corp. Ltd rose 4.4%, and Oil India Ltd gained up to 3.6% on the National Stock Exchange of India (NSE) in morning trade on Tuesday.

The NIFTY PSE Index, which comprises companies in which 51% of outstanding share capital is held by the central government and/or state government, gained as much as 2.3%.

Dividend payment threshold for PSUs reduced

The Union Government has eased the rules regarding dividends and bonus distributions for PSUs in order to enable these companies to share a greater portion of their profits with shareholders and make them investor-friendly.

Under the revised norms, every CPSE would now have to pay a minimum annual dividend of 30% of profit after tax (PAT), or 4% of the net worth, whichever is higher, compared to the earlier norm of 5% of the net worth.

For the buyback of equity shares, PSUs would need to have a net worth of ₹3,000 crore compared to ₹2,000 crore earlier. The cash reserve requirement for carrying out buybacks has also been raised to ₹1,500 crore from ₹1,000 crore earlier.

For bonus issues, the reserves and surplus requirement has been doubled to 20 times the paid-up equity capital of PSUs compared to 10 times earlier.

For stock splits, only listed CPSEs whose market prices exceed 150 times their respective face values consistently for the last six months may consider a split of their shares.