Larsen & Toubro’s (L&T) application for a ₹9,000-crore share buyback was based on the company’s standalone financial statement for the purpose of calculating the debt-to-equity ratio.

SEBI hadrejected the company’s proposal stating that the buyback plan was not in compliance, as the ratio of the aggregate of secured and unsecured debts owed after the buyback would be more than twice the paid-up capital and free reserves based on consolidated financial statements. The provisions of the Companies Act 2013 and SEBI’s Buy Back of Securities Regulations 2018 mention the financial ratio (debt-to-equity) required to be complied with after buyback from the point of view of the company buying back the security. Sources said L&T, which was in compliance of the said ratio after buyback on the basis of its standalone financial statements, applied for approval of its proposal to buyback up to 6,10,16,949 equity shares at a price of ₹1,475 per share.

“While turning down the proposal, SEBI has applied the financial ratio based on the consolidated financial statement of the company. It is to be noted that the consolidated financials of L&T includes debt of L&T’s financial services business, which by its permitted operating model, has a debt equity of nearly 6:1, well within the leverage permitted by RBI,” one of the sources said.

“The said basis for computation of debt equity ratio based on consolidated financial statement appear internal to SEBI and is not specified in its Buy Back of Securities Regulations. L&T would not have initiated the buyback proposal, had the basis of computation of the ratio been specified in the regulation,” the company source added.

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