Coal India (CIL) may have to dig into its Rs 60,000 crore plus cash reserve to buy back the government’s share in the company. It may even offer the promoter additional funds by declaring a special dividend.

Under pressure from the finance ministry to meets 2013-14 disinvestment target of Rs 40,000 crore, it is on the lookout for alternatives. Meanwhile, the company is still trying to win over the unions for the proposed follow-on-public offering (FPO).

According to a news report in The Financial Express, a top company official confirmed that the proposal for a 5% share buyback has already been discussed informally by the CIL board but the matter was yet to be taken up formally.

A 10% disinvestment in CIL has the potential to fetch close to Rs 20, 000 crore or half of this financial year’s disinvestment target. Rough estimates by the government suggest that a 5% buyback of shares by CIL may fetch the exchequer close to Rs 8000 crore while Rs 20 per share special dividend could provide another Rs 12,000 crore.

According to sources, a 5% buyback could get the board’s go-ahead as early as the end of the current calendar or early next year if, by then, no clarity emerges on the FPO. The declaration of a special dividend may have to wait at least till January end or early February, by when the company finalises its third-quarter results.

Though the special dividend could be declared out of the reserves of the company, sources said that CIL would like to wait to see its profitability for a substantial period of the fiscal and get more clarity on long-term investment plans before taking a final call.

The government feels that buyback of government shares by CIL may be a more palatable option for the workers’ unions as it does not involve any transfer of shares to outsiders. Declaration of special dividend may, however, be contested at the board as the twin proposals could substantially reduce company the cash reserves and hit its investment plans.