The Children’s Investment (TCI) Fund Management, the UK-based hedge fund and the second largest shareholder in Coal India (CIL) after the Indian government (which has a 90% stake), has asked the company board to pay out the annual profit as dividend.
Estimates suggest CIL’s net profit this fiscal could be Rs16,900 crore. At an estimated annualised earning per share of Rs30 for 2012-13, any such payout would be three times the Coal India shares’ face value of Rs10 each.
In a letter, TCI has argued higher dividend and share buybacks are the best way that CIL, with its cash pile of more than `65,000 crore (equivalent to 30% of market capitalisation) as at December-end, can reward its shareholders.
TCI said the near monopoly coal miner has not been deploying its funds productively. “This proves a lack of capital discipline. Even when CIL pays out 100% of profits in dividends, there is ample room for buybacks or special dividends.”
TCI further said CIL’s earnings are estimated to exceed `30 per share next year. “CIL should be proactive and start paying at least `30 in dividend per share this year,” said Oscar Veldhuijzen, partner at TCI, in the letter.
TCI, which is currently fighting a legal case against Coal India over charges of mismanagement and ignoring shareholders’ interests, also offered advice to the government on fiscal management.
“The government is facing large deficits. Higher dividends would help reduce these deficits. CIL’s dividend yield would be very attractive if payout was increased to 100% and would allow the government to divest more of its stake in CIL, should it wish do so,” said the TCI letter.
A dividend of Rs30 per share is the equivalent of only one-third of the cash of Rs100 per share that CIL currently holds on its balance sheet, TCI said.
With little investment in mine development and creation of infrastructure, and no outgo on any overseas acquisition in recent years, Coal India has already adopted a liberal payout policy.
For 2011-12, it paid 100% on face value, `9.50 a share as interim and another 50 paise a share as final dividend.