1. Conclusion
Buyback of shares helps promoters hike their holdings at company’s expenses. It leads to improvement in earnings per share (EPS) as the equity is reduced to the extent of shares bought back. Buyback also helps keep investor morale
high as it shows that the concerned company is financially sound and has enough cash to buy its own shares. While Corporates are trying to benefit from the current weak market, investors may not have gained much out of buyback
offers. Even though the offers from the companies are at a premium to the prevailing market prices, the fact remains that the respective shares do not witness any major uptrend during the buyback period, thus benefiting the companies
and not investors.
Critics of the buyback option claimed that large multinationals had utilized the buyback option to repurchase the entire floating stock from the market with the objective of delisting from the stock exchange and eliminating an investment
opportunity for investors. Moreover, most MNCs that offered buyback option reported a steep decline in the trading volumes of the shares of their Indian ventures thus affecting their liquidity. The buyback of shares allowed MNCs to
convert their Indian ventures into wholly owned subsidiaries (WOS). It also allowed them to delist the shares of these ventures from the stock markets and thus protect them from the volatility of the stock markets (caused by scams and
other market manipulations).The buyback option may be misused by MNCs to increase their equity stakes in their Indian ventures, escape public scrutiny and accountability and prevent them from the Indian regulatory environment.
Moreover, the option to convert their Indian ventures into wholly owned subsidiaries and delist their shares from the stock markets provided MNCs with complete control over their Indian ventures, allow them to repatriate profits and
make more independent investment decisions. Minority shareholders claim that they have no option and are forced to sell their shares once MNCs buy back shares from the majority shareholders
The dilemma that faces small investors in India is whether the buyback option, along with the SEBI guidelines, actually protects their interests and offers them an exit option at a fair price or is it a tool that provides them with no options
allowing large MNCs to gain complete control of their subsidiaries. The regulations framed by SEBI do not have provisions for preventing good stocks from delisting. Moreover, the buyback price, which is determined using the
parameters specified in the SEBI Takeover Code, does not consider the future potential of the stock. SEBI should look at various financial parameters such as future cash flows, value of brands and the value of fixed assets to determine
a pricing formula for open offers which ensure that investors who have been holding the stock for several years receive a fair price for their investment.