Gujarat Govt Orders Guidelines For 100 PSUs To Make Them Profitable

The Gujarat government released specific recommendations for capital restructuring and dividend distribution on Tuesday, in an effort to improve the financial management of the about 100 state public sector undertakings (SPSUs) in the state.

According to the resolution issued by the state finance department, “Government of Gujarat has set up about 100 state SPSUs in different sectors. These SPSUs have been set up for achieving specific objectives. However, it has been observed that most PSUs have been conservative in financial management. As a result, there is a need for strengthening the financial management of these SPSUs in the form of capital restructuring as well as Dividend distribution in order to realise the potential for market capitalisation, net worth, returns to investors and prudent management of available financial resources.”

The resolution stresses on “efficient management of state’s investment in state PSUs”, and contains “guidelines” issued for PSUs controlled by the Gujarat government or entities where the state has a controlling stake. It may be recalled that the issue was highlighted by the Comptroller and Auditor General of India (CAG) in its recent report on state’s finances.

“SPSUs have not done enough exercise in restructuring their capital by issue of bonus shares to maintain healthy balance in capital and net worth,” the resolution stated, while directing all SPSUs to pay a minimum annual dividend of 30 per cent of Profit After Tax or five per cent of net worth, whichever is higher.

As per the state data, there 61 SPSUs in Gujarat that are in profit. About 30 of them are in the red, and eight others neither report profit nor loss. Of the 100 SPSUs in Gujarat, 64 are government companies, four are statutory corporations and 32 others are government-controlled other companies.

Of these, 16 companies are inactive SPSUs, of which at least six are under liquidation. 

Claiming to provide a level-playing field to SPSUs vis-a-vis private companies, the resolution said: “Some of the SPSUs are not able to deploy cash/bank balances for viable business expansion. In such cases, buy-back of shares improves investor confidence in the company and is likely to help the company raise capital….” It allowed SPSUs with a net worth of at least Rs 2,000 crore and cash and bank balances of Rs 1,000 crore to exercise the buy-back option.