Financial Daily from THE HINDU group of publications
Sunday, Mar 24, 2002
Corporate - Buyback
MNCs taking buyback `positions'
MUMBAI, March 23
THE free market that should ideally increase choices for the investor seems to be proving otherwise.
Investors feel liberal capital market rules are being exploited by multinationals to consolidate their "positions''. This is evident in the spate of buyback announcements by MNCs with the intention of delisting from Indian stock exchanges.
Major MNCs that have announced buybacks include Philips, Nestle, Britannia, Reckit Benckiser, Otis Elevators, and Cadbury's. Many of them have also said that they would delist from Indian bourses. The strategy has caused concern among investors and they have alerted the Finance Ministry and the Securities and Exchange Board of India (SEBI), the capital market regulator, to the issue. Investors fear that it may affect the development and quality of the country's capital market. In fact, SEBI has been requested to relook at the policy allowing MNCs to buy back shares.
Investors' Grievances Forum has appealed SEBI to review the existing regulation on buyback. The amendment to the Companies Act, effected in the last quarter of 2001, has enabled boards of companies to go ahead with buyback without the shareholders approval.
Mr Kirit Somaiya, Member of Parliament and President, IGF, has alleged that many companies are manipulating the buy-back route to edge out the Indian investor. Nearly 20 companies have announced their plan to buy back shares with the idea of eventually delisting the companies.
"MNCs are taking advantage of the depressed market conditions to mop up the shares,'' Mr Somaiya said.
There is nothing legally wrong in buying back shares, but it should be by paying a fair price to minority shareholders, he said.
The forum has written to the Finance Ministry citing a specific instance -- that of Otis Elevators -- where the Indian partner was paid a premium on the market price while minority shareholders and financial institutions were offered a lower price through the buy-back. United Technologies bought out the Mahindras' stake in Otis Elevators at Rs 375 per share. But it has offered only Rs 280 per share in the open offer, he said.
Interestingly, as a measure to boost the primary market, a SEBI committee had earlier recommended asking unlisted MNCs such as Coca Cola and Pepsi to dilute part of their equities - say a minimum of 25 per cent - in favour of Indian investors.
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