3. Implication of Share Repurchase:
Correction of over pricing
Shoring up management stake
Exit mechanism
Shareholder value management
4. Equity Repurchases in India:
Till 1998, companies not allowed
Selling in secondary market was only exit route
As per companies act, lot of statutory
restriction
Only for strategic objective
5. Regulatory framework for Equity Repurchase:
Introduced in October,1998
Sec 77A and 77B of Companies Act
Financed out of free reserves and security
premium
Completion of bay back in 12 months
From existing shareholder, from employees
and directors out of ESOPs and Sweat equity
6. Cant make public issue of same kind securities
within six months
Two buy back programmes separated by 365
days period
Only direct company can purchase.
7. Buyback by Unlisted public companies and
Private companies:
No pricing guidelines
- Board or the company free to fix.
L of O sent to shareholder contains-
- All material facts
- Audited financial reports
8. - Impact of buy back on companies earning,
shareholding pattern, management structure
- Declaration of solvency
- Auditor’s report
9. Procedure:
Kept open for not less than 15 days and more
than 30 days
Offer accepted in proportionate basis
Verification by company within 15 days
Open special bank account
Make payment by 7 days
10. Buyback by Listed Companies:
Companies act, SEBI(Buy-back of securities,
1998), provisions of listing agreement.
Appoint merchant banker mandatory
No price mechanism
12. Pricing a share buy-back:
Price to be fixed at a premium over current
market price
Lower the p/e, higher the company can pay
Price should not be lower than issue price
If company doesn’t have too long history of
listing it is better to work out IRR.
13. Quantum of buyback:
Buy back in value terms of shares shall not
exceed 25% of total paid up capital and free
reserves
Buy back of equity shares shall not exceed 25%
of paid up capital.
Debt equity ratio shall not exceed 2:1 after
buyback.
14. DELISTING OF A LISTED COMPANY:
Concept-
Delisting is a process by which a company
whose shares are listed on the stock exchange
is taken private once again by getting its
publicly held shares bought over by private
shareholder and terminating the listing
agreement with the stock exchange.
15. De-listing: Either compulsory or voluntary
Reasons-
Stock exchange penalizes company
Non payment of listing fees
Violation of listing agreement
Statutory violation as non filing of accounts
16. De-listing in India:
De-listing related with strategical, financial and
investment banking consideration.
If Cost of remaining listed outweighs the
benefit sought to be received then de-listing is
valid decision.
Private equity considered better in terms of
returns.
17. In Weak market condition the cost of
regulatory compliances increase cost of
servicing public equity.
18. Regulatory requirement for de-listing
SEBI(De-listing of Securities), 2003.
Voluntary sought by promoters
Any scheme of arrangement consequent to
which shareholding fall below limit required
Compulsory de-listing by stock exchanges
Consolidation of holding by a person in a
manner in which public holding falls below
requirement
19. When a company makes a buy back of shares
in such a way that the public shareholding falls
below the minimum limit required.
An open offer made by an acquirer pursuant
to Takeover code due to which public
shareholding falls below required limit.
20. Voluntary De-listing:
Listed at least 3 years prior to date of delisting
Obtain approval from shareholder in general
meeting
Merchant banker should be appointed to
administer the buy-back for de-listing.
21. Pricing a Voluntary De-listing:
Reverse book building process followed
Public announcement for floor price
Floor price determined as average of 26 weeks
traded quotes
No cap prices
22. Process requirement:
Announcement for de-listing contain
information of floor price, trading center,
trading process, stock exchanges.
Promoter opens escrow account and deposit
100% of the amount required
Bids put by on line electronic systems through
trading members
Bidding period last for 3 days.
23. After 2 days of closing final price announced
Conditions-
If any convertibles outstanding, de-listing not
permitted
Delisting need not be given where securities
continues to be listed in NSE and BSE.
