The Central Public Sector Enterprises as a way of ensuring consistent returns for shareholders and better financial flexibility will now give a minimum annual dividend of 30% of their profit after tax (PAT) or 4% of their net worth.
The Department of Investment and Public Asset Management (DIPAM) released an updated framework through a memorandum introducing key measures for dividends, share buybacks and bonus share issuance.
As part of the new rules, “Every CPSE would pay minimum annual dividend of 30% of PAT or 4% of the net worth, whichever is higher, subject to the limit, if any, under any extant legal provision. Financial sector CPSEs like NBFCs may pay minimum annual dividend of 30% of PAT subject to the limit, if any, under any extant legal provisions.”
CPSEs can also repurchase shares now if their market price consistently remains below book value for six months and they have a net worth of at least Rs 3,000 crore and a cash and bank balance of more than Rs 1,500 crore.
This flexibility has been brought in to engage in financial restructuring that aligns with evolving market conditions. This further encourages CPSEs to focus on value creation by aligning performance with performance indicators like CAPEX, EBITDA, return on net and asset turnover ratios, thereby maximising returns for shareholders.
Further, CPSEs can issue bonus shares if their reserves exceed 20 times the paid-up equity share capital.
These guidelines would be reviewed every three years to ensure their relevance amid changing market dynamics.
