Buyback Of Shares.pptx

8/14/2019 Buyback Of Shares.pptx

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BUYBACK Of Shares


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What is BuyBack of Shares

A stock buyback, also known as a"share repurchase", is a

company's buying back its sharesfrom the marketplace. You canthink of a buyback as a company

investing in itself, or using itscash to buy its own shares.
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Why do Companies Go for BuyBack

One of the main purpose of buybacks can be to

boost demand by reducing the supply

To pay surplus cash not required by business To increase promoters holding

Increase earning per share

Adjust or Change the capital structure quickly

To thwart takeover bid


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SECTIONS

The provisions regulating buyback of shares are

contained in Section77A, 77AA and 77B of the

Companies Act,1956.

These were inserted by the Companies

(Amendment) Act,1999.

The Securities and Exchange Board of India(SEBI)

framed the SEBI (BuyBack of Securities)

Regulations,1999 and the Department of CompanyAffairs framed the Private Limited Company and

Unlisted Public company (BuyBack of

Securities)rules,1999 pursuant to Section 77A(2)

(f)and(g) respectively.


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PROCEDURE FOR BUYBACK

Public Announcement

Disclosure Should Adhere to SEBI Guidelines

Filing Of letter With SEBI.

Opening Of ESCROW Account.


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Resources For BuybackFree reserves

Securities premium account

Proceeds of any shares or other specified securities


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Process of Buyback

Buyback through Tender Offer.

Buyback from Open Market Through Stock Exchange.

Buyback from Open Market Through Book Building Process.

BUYBACK OF SHARES BY PRIVATE LIMITED COMPANIES OR

UNLISTED COMPANIES.


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SEBI Guidlines

As part of SEBI's constant endeavour to align regulatory

requirements with the changing market realities as well as toenhance efficiency of the buy-back process, the following changes tobuyback of shares or other specified securities from the open marketthrough stock exchange mechanism have been approved:

The mandatory minimum buy-back has been increased to 50% of theamount earmarked for the buy-back, as against existing 25%, failing

which amount in the escrow account would be forfeited subject to amaximum of 2.5% of the total amount earmarked.

The maximum buy-back period has been reduced to 6 months from12 months.

The companies shall create an escrow account towards security forperformance with an amount equivalent to at least 25% of theamount earmarked for buy-back.

The company shall not raise further capital for a period of one yearfrom the closure of the buy-back except in discharge of subsistingobligations as against the existing 6 months.


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The company shall not make another buy-back offer within a period ofone year from the date of closure of the preceding offer.

The disclosure requirements have been rationalized requiringdisclosure of the shares bought back on a cumulative basis on thewebsite of the company and the stock exchange, only on a daily basisinstead of the current requirement of disclosure on daily, fortnightlyand monthly basis.

The companies can buy-back 15% or more of capital (paid-up capitaland free reserves) only by way of tender offer.

Procedure for buy-back of physical shares (odd-lot) has been modifiedwhich includes creation of separate window in the trading system fortendering the shares, requirement of PAN/Aadhaar for verification, etc.

The companies are permitted to extinguish shares bought back during

the month, within fifteen days of the succeeding month subject to thelast extinguishment within seven days of the completion of the offer.

The promoters of the company shall not execute any transaction,either on-market or off-market, during the buy-back period.


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Increased Shareholders Value Higher Stock Prices

Increased Float

Excess Cash

Income Taxes Price Support

Benefits of Buyback


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Manipulation of Earnings

Buyback Percentage

Execution of Buyback

High Stock Prices

Potential Pitfalls


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RIL Buy Back

Reliance Industries Ltd (RIL) began the buyback on February 7,2012 with a target to repurchase shares worth about Rs

10,440 crore from the public shareholders.

The company had offered to buyback the shares at a price of

up to Rs 870. Reliance Industries has bought back shares worth over 4.62

crore shares worth Rs 3,900 crore from public shareholders

through an about year-long share repurchase achieving just

about 38 per cent of the target.

average price at which each share was bought was Rs 726.7.

Promoters stake increased from 44.71%. To 46.33%.


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Capital Structure and shareholding pattern


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INDIAN RAYON

In 1999 announced buyback of 25% equity share

capital

Price offered was in the range Rs 75-85 with

Intended cash outflow Rs 127-144 Cr

To increase promoters stake from 21.5% to 28.7%

The reason given by the management for the

buyback was that Indian Rayon is working at below

capacity and there were no major capital

expenditure plans at that time.

Hence the best way to add value to shareholders is

to return the funds to them.


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Capital Structure and shareholding pattern


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Result

Could purchase only 11% of its outstandingshares as against the 25% offered

Hiked the price on offer to Rs. 85

Market cap fell from 1397 Cr in 1999 to 455 Cr,5 years later

Share price plunged from Rs. 207 to Rs. 67

Launched at wrong time- Co. was not doingwell and markets were crashing

Documents

Buyback Of Shares.pptx