Larsen & Toubro has approved buying back 3.3 crore shares, or 2.4 per cent of its equity, through the tender offer route at a price of up to ₹3,000 per share for a maximum consideration of ₹10,000 crore.

This is the first ever share buyback by the company, which attempted a buyback in 2019 but ran into trouble with the Securities and Exchange Board of India. (SEBI)

At that time, the company was planning to buy back shares worth ₹9,000 crore at ₹1,475 a share, but was directed by SEBI not to proceed with the buyback. The regulator had said that the aggregate of secured and unsecured debts owed by the company after the buy-back (assuming full acceptance) will be more than twice the paid-up capital and free reserves of the company based on consolidated financial statements, and the buyback was not in compliance with the Companies Act and SEBI norms. This was due to the debt of the financial services company in the group, L&T Finance Holdings.

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Debt-to-equity ratio

Group Chief Financial Officer R Shankar Raman said in a media briefing on Tuesday that after the previous experience, they had worked with SEBI to make the guidelines clearer. Under the current guidelines, if the group has a non-banking finance company whose debt-to-equity ratio is under 6, then its debt would be excluded from calculating the debt-to-equity ratio for the purposes of the buyback. Raman said the financial services company has a debt-to-equity ratio of less than 4 now. He added that companies no longer have to get SEBI’s prior permission for share buybacks so long as they are following the mandated guidelines.

He explained that the buyback was being undertaken to improve the company’s return on equity, which was 12.8 per cent at the end of June. It was part of the company’s “RoE improvement programme,” towards which the company was aiming.

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Usually, buybacks under the tender offer route are made at a fixed price, but L&T is taking approval for a maximum price of ₹3,000. Raman said that considering the volatility in the market, the company would take shareholder approval for a price of up to ₹3,000, and the price would be fixed closer to the date of the buyback. The buyback price is at a 17 per cent premium to Tuesday’s closing price of ₹2,560.90 on the NSE.