Buyback of Shares

Group Members

Amir Khusroo (JIML-09-010) Ankit Srivastava (JIML-09-022) Divyank Gupta (JIML-09-051) Gyan Prakash (JIML-09-055) Hari Shanker Tiwari (JIML-09-56) Harsh Nagar (JIML-09-057) Mayank Sharma (JIML-09-078) Shrey Sharma (JIML-09-150)

Agenda

What is buy back Pros and cons History of buy back Conditions of buy back Methods of buy back of unlisted and listed

companies with case studies Pitfalls Manipulations Other points

What Is Buyback?

“Buyback is reverse of issue of shares by a company where it offers to take back its shares owned by the investors at a specified price; this offer can be binding or optional to the investors.”

In simple words, "Buyback is the buying back of shares from the existing shareholders of a

company by the company."

Objectives of Buyback

To increase promoters holding

  Before BB After BB

Total number of o/s shares 100000 80000

Promoters 40000(40%)

40000(50%)

Others 60000(60%)

40000(50%)

Objectives…Cont’d

To increase earning per share

  Before BB After BB

Total number of o/s shares 10000 9000

PAT 100000 100000

EPS (PAT/No of o/s shares) 10 11.11

Objectives…Cont’d

Rationalize the capital structure by writing off capital not represented by available assets

Show rosier financials To pay surplus cash as an alternative to a higher

dividend payment or investing To thwart the attempts of a hostile take-over

Objectives…Cont’d

Exit option Employee stock option plans (ESOPs) Support share value- Eg.Bajaj Auto & Reliance Tax Gains Market Perception

Pros of buyback

To the company: Prevent hostile takeovers Gives flexibility in the capital structure & financial position To support share prices Reduces capital and thus improves EPS & ROE of the

Company post buy-back Freeing up cash reserves will improve ROA & ROE

Pros of buyback

To the Shareholders: Tax Gains Higher share price Higher proportional share

Cons of Buyback

Regulatory requirement Reduces cash surpluses Post Buy-back Debt Equity ratio not to exceed

2:1 Maximum equity shares limit Maximum Amount

History of Buy Back

Prior to ’98 restricted buybacks Ordinance by Government of India (GOI) on

October 31, 1998 Insertions of sections 77A,77AA,77B Governed by SEBI (SAST), SEBI (Buyback of

securities) regulation MNC’s- Delisting

e.g. Cadbury India, Kotak India, Blue Dart etc.

Resources of Buy Back (under Companies Act 1956 section 77A)

A company can purchase its shares out of: free reserves securities premium account; or proceeds of any shares or other specified

securities.

Methods of Buy Back of Shares for listed companies (under SEBI Regulations) from the existing shareholders on a

proportionate basis through the tender offer

from open market through stock exchanges, and book building process

from shareholders holding odd lot shares.

General Procedure

Special Resolution The Explanatory Statement. Public announcement specifying the record date. Appointment of Merchant Bankers. Compliance officer and an investor service center. Filing of the offer document. Freedom to fix the price of shares for buy back.

General Procedure

For Promoters

Advertisement has to be given in the newspapers within 2 days of completion of buy back.

General Restrictions

For Promoters

For the company

Buy back is not allowed through spot transactions or private arrangements

Public announcement

The shares which are locked-in or which are non-transferable are not allowed to be bought back

Special Resolution

7 days

File with SE & SEBI

File with SE and SEBI and give Public Notice in News Paper

2days

Public Announcement

7 days

File draft LoF

SEBI modifies document if needed

21 days

+ 30 to 42 days

Specified date

+ 7 to 30 days

Opening Day

+ 15 to 30 days

Closing Day

Verification of shares / Acceptance Rejection of Offer

15 days

Payment of consideration / Extinguishment of shares

7 days

Board Resolution

Time line for tender offer

The Company manufactures and markets speciality drugs and active pharmaceutical ingredients for chronic therapy areas

the Company was ranked 5th among all Indian pharma companies with an about 2.93% Market Share in 2003-04

1st buyback Sun Pharma in the past has already bought back equity

shares. This was through Open Market through Stock Exchanges for

25%.

Particulars of first buy back

Particulars 1st buy back

Date of offer:Opening:Closing:

7 Jan 20036 Oct 2003

Merchant banker JM Morgan Stanley

No. of shares bought back 832938

Offer price 750

Shares prior to buy back 46794308100

Shares post buy back 46793475162

Details of BuyBack

The offer was for 100% Buy-back of 154517050 outstanding 6% Cumulative Redeemable Preference Shares of face value of Re.1/- each

At a price of Rs. 1.03/- per Preference Share Through Tender Offer. .

Particulars of Second Buy Back

Reasons For The Offer

Requests from some of the Preference Shareholders of Company for Buy-back of Preference SharesThe Company had sufficient accumulated free reserves and satisfactory liquidity. There was no immediate need for these funds Reserves and Surplus (Rs. In Lacs)

Capital Reserve 67

Share Premium Nil

Capital Redemption Reserve 3472

Share Capital Buy back Reserve 41

General Reserve 58631

Profit & Loss Account 22113

TOTAL 84324

Result

The offer received 90.77% success at RS 1.03 per share. The total consideration paid was Rs 144469780 They received 140261922 preference shares The post buyback preference shares had come down to

10047270 from 154517050

Ratios

Particulars Pre- buy back

Post buy back

Earning Per Share

9.6 4.3

Price / earning ratio

67.60 99.30

Buyback from Open Market The buy-back of shares from the open

market may be in any one of the following methods:

a) through stock exchange

b) Book Building process.

Conditions

General procedures Stock exchanges with electronic trading facility Buy-back only through order matching

mechanism Information to stock exchange on regular basis Verification of Acceptances Extinguishment of certificates

Public Announcement

File copy with SEBI

Commencement of Buy Back

2 days 7 days

Purchase of Shares

15 days

Verification of Acceptances

Pay- Out

Extinguishment of shares

7 days

Completion of buy back

Special / BOD Resolution

1 year

Timeline

Reliance Industries

Largest private sector company Total assets of 93,095 crores 4% of the total market capitalization Weightage of 10.6% in the Sensex Weightage of 8.6% in the Nifty 8% in Indirect tax revenues

Brief background

Announced the largest buyback programme in April 2000

Set apart 1100 crore Share priced not more than Rs.300 RIL did not pick a single share in the last

buyback programme

Particulars of buyback

Announced on 28th Dec’04

Date of Offer:

Opening

Closing

11th Jan’05

Dec’05

Shares to be bought back 52 million

Aggregate Amt Rs.2999cr

Max offer price per share Rs.570

One of the Merchant Bankers J.M.Morgan Stanley

Reasons for buyback

The buyback proposal in response to the fall in the RIL share price

Stock had fallen 12% from Rs.544 on 17th November to Rs.480.65 on 20th December

To manage stock price volatility Decrease overall cost of capital Increase earning per share To return money to the shareholders in a tax efficien

t and investor friendly fashion

Buy Back Period

Result of buyback

1st day of buyback- 6,29,800 shares Rs.539.62

Scrip price (fell 1.36%) Rs.533.50

Buyback closed on 2nd Aug’05

Shares bought back 2.86 million shares

Total Amt (a small fraction) Rs.149.6 cr

India Bulls Ltd.

India’s leading Financial Services and Real Estate company having presence over 414 locations in more than 124 cities

Listed at NSE, BSE, LSE, Luxemburg Stock Exchange

Market Capitalization - $800 million ( approx )

Net Worth – USD 500 million ( approx )

Source :- Company Website

Particulars of Buy Back

Announced on 18th Nov, 2005

Date of Offer:

Opening

Closing

09th Dec, 05

16th Feb, 06

Shares to be bought back 18,09,523

Aggregate Amt Rs.38 crores

Max offer price per share Rs.210

One of the Merchant Bankers J M Morgan Stanley Pvt Ltd.

Stock Movement

Public Announcement

Approval

in BM

1st day of buy-back

Effect of Buy Back

Particulars Before Buy Back After Buy Back

EPS 4.13 4.38

P/E 47.94 58.38

Shareholding Pattern

After Buy Back

30.34

35.7 33.96

05

10152025303540

Promoters Non -Promoters

Others

% Stake

Before Buy Back

30

22.78

47.22

0

10

20

30

40

50

Promoters Non -Promoters

Others

% Stake

Role of a Merchant BankerThe merchant banker shall ensure that : Furnish to the Board a due diligence certificate with the draft

letter of offer The public announcement of buy-back is made as per the

terms of the regulations The merchant banker shall ensure that the contents of the

public announcement of offer as well as the letter of offer are true, fair and adequate and quoting the source wherever necessary

The letter of offer has been filed as per SEBI guidelines The company is able to implement the offer

Role of a Merchant Banker The provisions relating to Escrow Account, as per the

regulations, has been made Firm arrangements of money for payment to fulfill the

obligations under the offer are in place The merchant banker shall ensure compliance of section 77A

and section 77B of the Companies Act, and other laws or rules as may be applicable

Ensuring release of balance Escrow amount deposited with the bank

Ensuring that the certificates of the bought back shares are destroyed as per the guidelines of SEBI

The merchant banker shall send a final report to the Board within 15 days from the date of closure of the buy-back offer