2. SHARE REPURCHASE / SHARE
BUYBACK
Concept

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

11. Methods:
 Fixed price tender offer
 Book-building method
 Open market purchase

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.

24.  Compulsory de-listing
 De-listing pursuant to a right issue
 Re-listing