CIL decision to pay big dividend should satisfy UK’s TCI

The decision by government-owned Coal India Ltd to pay an interim dividend of 290 per cent, or Rs29 per share with a face value of Rs10, will make its overseas investors richer by over Rs1,001 crore ( See: Government to be richer by Rs19,600 cr as CIL declares 290% dividend) CROSS LINK NO 5 KA TITLE

Of the total proceeds, foreign institutional investors (FIIs), which as of December 2013 held a 5.47 per cent stake or 34.52 crore shares, will get a bonanza worth Rs1,001.08 crore.

This should help satisfy overseas investors like The Children's Investment Fund Management (TCI), the UK-based hedge fund which is the second-largest shareholder in Coal India Ltd (CIL) after the Indian government, with a stake of a little over 1 per cent.

In a strongly worded letter to the company board some 11 months ago, TCI had asked the company to pay out the entire annual profit as dividend, at least Rs30 a share (See: UK fund tells Coal India to pay out 100% dividend).

The TCI letter had said CIL 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.''

In its letter, TCI 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) in December 2012.

Another major beneficiary of the interim dividend will be the state-owned Life Insurance Corporation (LIC), which holds a 1.83 per cent stake in CIL. It will get Rs335.63 crore.