Share buyback activity at 5-year high in 2013-14

Buyback activity in the Indian stock market touched a five-year high in 2013-14, with 31 offers involving an acquired amount of ₹4,426 crore concluded during the financial year.

Previously, the maximum number of buybacks concluded in a single year was seen in 2009-10, when 44 such offers were closed. But compared to 2009-10, buybacks in the previous financial year witnessed a greater degree of success, with 78 per cent of the target of ₹5,704 crore achieved. In contrast, just 29 per cent of the offer amount of ₹4,146 crore was met in 2009-10.

There have been more successful years in terms of the amount acquired through buybacks vis-à-vis the offer amount. In 2010-11, 96 per cent of the buyback target of ₹4,181 crore through 23 offers was met and in 2008-09, 93 per cent of the buyback target of ₹1,891 crore was achieved. The value of shares acquired through buybacks was also higher in 2012-13, at ₹4,746 crore. But this was just 38 per cent of the acquisition target of ₹12,352 crore.

While 24 of the buybacks in 2013-14 were conducted through the stock exchange route, the remaining seven were through the tender route. The largest buyback completed during the year was by NHPC for ₹2,368 crore, accounting for over half of the total amount acquired through buybacks.

Other large buybacks that were closed during the year include offers by Bayer Cropscience(₹454.9 crore), UPL (₹282.5 crore), JBF Industries (₹73.2 crore), Jagran Prakashan (₹47.5 crore), FDC (₹46.5 crore), SMS Pharmaceuticals (₹40.5 crore) and Graviss Hospitality (₹43 crore).

Buyback of shares means repurchase of outstanding shares using surplus cash in the balance sheet of a company. It results in a reduction in share capital to the extent of the shares bought back.

The move also leads to an increase in promoter holding and improvement in earnings per share for the future period. Shareholders can participate either through the tender offer route or by selling shares in the open market as may be decided by the company.

SEBI norms

In August 2013, market regulator SEBI had tightened the rules for buyback of shares to prevent instances of promoters attempting to drive up share prices.

Among the changes was a requirement for a minimum buyback of 50 per cent of the targeted amount within six months of the offer against the earlier norm of 25 per cent in 12 months. In case a company failed to achieve the 50 per cent mark, they would have to forfeit up to 2.5 per cent of the money earmarked for the buyback.

What’s more, SEBI made it mandatory for a minimum buyback of 15 per cent of share capital under the mechanism, while also prohibiting the companies from raising capital or making a further buyback offer within a year from the date of closure of the buyback.

The new rules had some bearing on the greater degree of success of buyback programmes in 2013-14 vis-à-vis the previous two years, as companies coming out with offers were compelled to meet their targets.

In terms of buyback offers which opened in this period, there were 32 such offers in 2013-14 offering to buy shares worth Rs 11,380 crore. Till now, 23 of these offers have closed. The offer amount in these 23 offers was ₹5,274 crore and the acquired amount was ₹4,267 crore. Nine offers are still open, the largest of which is the Cairn India buyback offer for ₹5,725 crore.

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