Indian government is divesting its holdings in public companies to raise money.
Recently it had considered two companies Rural Electrical Corporation (REC) and Power Finance Corporation (PFC).
Initially the government thought of REC buying out the government's stake in PFC. Then it decided to have PFC buy out the government's stake in REC.
I was wondering, with my limited understanding, about the pros and cons of the two options.
Here are some data as of today
REC PFC
Market cap ('000 Crores). 24.3 27.7
Govt holding in %. 58 61
Dividend as % of share price 7.45 7.45
Value of govt holdings
=market cap*holding %
('000 Crores). 14.2 16.9
Dividend amount for govt
Without divestment
('000 Crores).
=Market cap*Dividend % 1.05 1.26
*Govt holding %
If REC bought government's stake in PFC, government would receive 16.9 thousand crores. In the other option, government would receive 14.2 thousand crores.
The total yearly dividend amount from either company, without considering divestmentis the same (a little more than Rs1000 crores).
Of course, whether the date of acquisition is after or before the dividend record date of the acquiring company and how much it can pay as dividend in light of cash required for purchasing the acquiree company are other factors.
The total yearly dividend amount from either company, without considering divestmentis the same (a little more than Rs1000 crores).
Of course, whether the date of acquisition is after or before the dividend record date of the acquiring company and how much it can pay as dividend in light of cash required for purchasing the acquiree company are other factors.
The government initially chose the 1st option, then the 2nd. The original option would have netted more money to the government. Obviously there are other considerations to the decision.
Data from
- https://www.moneycontrol.com/india/stockpricequote/finance-term-lending-institutions/rec/REC02
- https://www.moneycontrol.com/india/stockpricequote/finance-term-lending-institutions/powerfinancecorporation/PFC02
- https://www.recindia.nic.in/shareholding-pattern
- https://trendlyne.com/equity/share-holding/1026/PFC/latest/power-finance-corporation-ltd/
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