Business

GAIL shares surge 4% on buyback talks

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New Delhi: Shares of GAIL (India) on Tuesday gained nearly 6% in intra-day trading and closed nearly 5% higher after the company announced it will consider buyback of shares.

The stock jumped 5.74 per cent to 143.50 — its 52 week high — on BSE.

On NSE, it gained 5.74 per cent to its one-year high of 143.50 and closed the day nearly 5% higher at 142.05.

GAIL (India), the nation’s largest gas distribution firm, will on Friday consider buyback of shares with a view to returning surplus cash to shareholders, the biggest being the Government of India.

In a stock exchange filing on Monday, the company said its board will meet on January 15 to consider share buyback and also payment of interim dividend for the fiscal year ending March 2021.

The firm, however, did not give further details.

The government has asked at least eight state-run companies to consider share buybacks as it scours for ways of raising funds to rein in its fiscal deficit.

The firms asked to consider share buybacks include miner Coal India, power utility NTPC, and minerals producer NMDC.

A buyback, also known as a share repurchase, is when a company buys its own outstanding shares to reduce the number of shares available in the open market.

Companies buy back shares for a number of reasons, such as to increase the value of remaining shares available by reducing the supply or to return surplus cash to shareholders.

The government, which holds 52.1 per cent of GAIL, is likely to participate in the GAIL buyback just as it did in the case of NTPC, Engineers India Ltd, RITES and KIOCL.

Finance Minister Nirmala Sitharaman had in her budget for 2020-21 set a target of raising 2.1 lakh crore from privatisations and sale of minority stakes in state-owned companies.

The share buyback, as well as the dividend, is counted as part of this target.

According to the Department of Investment and Public Asset Management (DIPAM), the government has so far raised 28,298.26 crore from disinvestment proceeds.

This includes 14,453.77 crore received as dividend from state-owned firms.

The remaining 13,844.49 crore proceeds include 1065.37 crore from selling shares in NTPC share buyback.

The government is likely to miss its disinvestment target by a wide margin and the fiscal deficit is not likely to be anywhere near the target of 3.5 per cent of the GDP in 2020-21 (April 2020 to March 2021).

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