DIPAM Introduces Revised Capital Restructuring Guidelines for Central Public Sector Enterprises

The Finance Ministry has released updated guidelines for capital restructuring by Central Public Sector Enterprises (CPSEs). These guidelines require CPSEs to distribute a minimum annual dividend of either 30% of net profit or 4% of net worth, whichever is greater. Financial sector CPSEs, such as Non-Banking Financial Companies (NBFCs), are also expected to adhere to this rule, subject to any existing legal constraints.

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Previously, the 2016 guidelines mandated a dividend payment of 30% of profit after tax or 5% of net worth, whichever was higher. The new guidelines now specify conditions for financial sector CPSEs. Additionally, CPSEs with a market share price consistently below book value for six months, a net worth of at least Rs 3,000 crore, and cash reserves over Rs 1,500 crore may consider share buybacks.

Dividend and Share Management

The guidelines suggest that CPSEs should issue bonus shares if their reserves and surplus exceed 20 times their paid-up equity share capital. For listed CPSEs with a market price consistently more than 150 times the face value over six months, share splitting may be considered. A minimum three-year gap between successive share splits is required.

These rules extend to CPSE subsidiaries where the parent holds more than a 51% stake. However, they exclude public sector banks, insurance companies, and entities barred from profit distribution under section 8 of the Companies Act. The guidelines take effect from the financial year 2024-25.

Operational Flexibility and Investor Participation

The revised guidelines also propose that CPSEs consider quarterly interim dividends or at least biannual payments. Listed CPSEs must pay at least 90% of the projected annual dividend in interim instalments. The final dividend for the previous fiscal year should be distributed soon after the Annual General Meeting in September.

Unlisted CPSEs are advised to declare an annual final dividend based on audited financials from the previous year. These changes aim to enhance CPSE value and shareholder returns while improving operational efficiency and flexibility.

All capital management issues will be reviewed by the Committee for Monitoring of Capital Management and Dividend by CPSEs (CMCDC), chaired by the Secretary of DIPAM. The guidelines aim to attract more investors to participate in CPSE value creation.