Government revises capital restructuring norms for PSUs, reducing dividend payout to 4% of net worth, updating rules for bonus shares, stock splits, and buybacks.
For the first time since 2016, the government has revamped the capital restructuring norms for Central Public Sector Undertakings (PSUs). The updated guidelines aim to align with evolving market conditions and strengthen the financial frameworks of these state-run enterprises. Here’s a detailed breakdown of the new norms for dividends, bonus shares, stock splits, and buybacks.
Reduced Dividend Payout Obligation
One of the key changes involves lowering the dividend payout requirement for PSUs:
- New Norm: PSUs must now pay 4% of their net worth as a minimum annual dividend, compared to the earlier 5%.
- PSU NBFCs Exception: While the net worth criterion is removed, NBFCs must still pay 30% of their net profit as a minimum dividend.
Guidelines for Share Buybacks
The rules for equity share buybacks have become more stringent:
- Net Worth Requirement: PSUs must have a minimum net worth of Rs 3,000 crore, up from Rs 2,000 crore.
- Cash Reserve Requirement: A higher cash reserve of Rs 1,500 crore is now mandatory, compared to Rs 1,000 crore earlier.
Bonus Shares: Higher Reserves Needed
Issuing bonus shares has become more challenging with revised criteria:
- PSUs now need reserves and surplus equivalent to 20 times their paid-up equity capital, doubling the earlier requirement of 10 times.
Tighter Rules for Stock Splits
The norms for stock splits have also been revised significantly:
- Market Price Criterion: The market price of a PSU’s share must now be at least 150 times its face value, compared to the earlier 50 times.
- Mandatory Gap: There must be a minimum gap of three years between two stock splits.
Recent Announcement Made by PSUs
Several PSUs have already implemented or announced changes aligned with these new norms:
- Mazagon Dock Shipbuilders: Approved a stock split, dividing one equity share with a face value of Rs 10 into two shares of Rs 5 each.
- NMDC: Declared a bonus issue, offering two additional shares for every one share held—its first bonus issue since 2008.
Impact on Nifty CPSE Index
The market response to these changes has been mixed. On November 19, 2024, the Nifty CPSE Index rose by 1.68%. However, for the month of November, it remains down by 3.88%, reflecting broader market volatility.
Why These Changes Matter
- Improved Financial Discipline: These norms encourage better resource allocation and efficient capital use by PSUs.
- Investor Benefits: Stricter buyback and dividend policies aim to strike a balance between rewarding investors and maintaining financial stability.
- Market Alignment: The updated rules ensure that PSUs adapt to modern market expectations, enhancing their competitiveness and value proposition.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
