UK fund tells Coal India to pay out 100% dividend

The Children's Investment Fund Management (TCI), the UK-based hedge fund which, with a stake of a little over 1 per cent, is the second-largest shareholder in Coal India Ltd (CIL) after the Indian government, has asked the company board to pay out the entire annual profit as dividend – at least Rs30 a share.

In a letter to the directors of CIL, TCI has said that CIL has the capacity to, and should, pay out 100 per cent of its net profits in dividends and at least Rs30 per share starting this fiscal.

Estimates suggest CIL's net profit this fiscal could be Rs16,900 crore. At an estimated annualised earning per share of Rs30 for 2012-13, such a payout would be three times the Coal India shares' face value of Rs10 each.

In its letter, TCI has argued that higher dividend and share buybacks are the best way that CIL, with its cash pile of more than Rs65,000 crore (equivalent to 30 per cent of market capitalisation) as at December-end, can reward its shareholders.

TCI said the near-monopoly coal miner (in which the government holds 90 per cent) has not been deploying its funds productively. ''This proves a lack of capital discipline. Even when CIL pays out 100 per cent of profits in dividends, there is ample room for buybacks or special dividends.''

TCI further said CIL's earnings are estimated to exceed Rs30 per share next year. ''CIL should be proactive and start paying at least Rs30 in dividend per share this year,'' said Oscar Veldhuijzen, partner at TCI, in the letter.