Shares of most public sector companies in Gujarat rose 8-15% on April 26 after the state government announced a minimum-level dividend distribution and bonus share policy for PSUs.
With this new policy of mandatory dividends and bonus shares, the state aims to increase the valuation of Gujarat PSUs. All seven listed PSUs in the state are profitable.
Gujarat has mandated a minimum dividend of at least 30% of net profit or 5% of net assets, whichever is higher, to be declared to shareholders. However, only the minimum and maximum permissible dividend levels should be declared.
For share buybacks, every state PSU with net assets of at least Rs 2,000 crore and cash and bank balances of at least Rs 1,000 crore has been authorized to exercise the option to buy back its own shares. For bonus shares, a state PSU with stated reserves and surplus equal to or exceeding 10 times its paid-up share capital must issue bonus shares to its shareholders.
In case of a share split, Gujarat stipulates that if a state PSU share’s market price or book value exceeds 50 times its value, provided its current share face value exceeds Re 1.