The Hindu Business Line : Buyback to support DLF?

DLF’s proposal to buyback shares sent the company’s stock soaring Northward on Wednesday. The stock rose 21 per cent from its day’s low of Rs 350 to close at Rs 424. DLF’s board will meet on July 10 to approve the proposal.

While the market appeared to cheer the proposal, much would have depended on the mode of offer. Buybacks are made either through the tender offer route (where an offer is tendered to the existing shareholders on a proportionate basis) or through the open market (typically through the stock exchanges). Not all shareholders may be able to participate.

Buybacks are often made with the intention of supporting a company’s share value in the stock markets, especially when the company feels that its shares are undervalued and does not reflect the company’s fundamentals. Buybacks are also done with an objective to thwart any bids to takeover a company, to distribute any surplus cash or to increase the yield on equity.

DLF had over a year ago raised equity from the public and has significant internal requirements for cash given the large projects on hand. The proposal at this point in time, therefore, suggests that the company would like to send out a signal on stock price.

Shareholder approval

The market regulator allows companies to buyback shares to the extent of 10 per cent of their paid-up capital and reserves without shareholders’ approval. This essentially means that DLF can buy-back about Rs 2,000 crore without shareholders resolution. Companies are also allowed to invest a maximum of 25 per cent of their equity capital and free reserves for the purpose.

DLF had cash and cash equivalents of Rs 1,621 crore as of March 2008. The company’s paid-up equity and reserves and surplus added up to over Rs 20,000 crore. DLF had raised money through an IPO in June 2007 at an issue price of Rs 525 per share. With the share currently trading below this price, a tender offer, if any, may have to exceed the IPO issue price, to make it significantly attractive to investors.

More Stories on : Buyback | Real Estate & Construction | DLF Ltd

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page