Implication of Share Repurchase: Correction of over pricing Shoring up management stake Exit mechanism Shareholder value management
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
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
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.
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
- Impact of buy back on companies earning, shareholding pattern, management structure- Declaration of solvency- Auditor’s report
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
Buyback by Listed Companies: Companies act, SEBI(Buy-back of securities, 1998), provisions of listing agreement. Appoint merchant banker mandatory No price mechanism
Methods: Fixed price tender offer Book-building method Open market purchase
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.
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.
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.
De-listing: Either compulsory or voluntaryReasons- Stock exchange penalizes company Non payment of listing fees Violation of listing agreement Statutory violation as non filing of accounts
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.
In Weak market condition the cost of regulatory compliances increase cost of servicing public equity.
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
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.
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.
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
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.
After 2 days of closing final price announcedConditions- If any convertibles outstanding, de-listing not permitted Delisting need not be given where securities continues to be listed in NSE and BSE.
Compulsory de-listing De-listing pursuant to a right issue Re-listing