India’s market regulator rejected Larsen & Toubro’s Rs 9,000-crore share buyback on Friday.
The construction and capital goods firm had proposed to buy back 6.1 crore shares at Rs 1,475 apiece comprising 18.72 percent of the company's net worth and filed an application with SEBI on October 10, last year.
The market regulator rejected the proposal citing a sharp rise in the debt-to-equity ratio if the buyback went through, according to L&T’s exchange filing.
Since the ratio of the aggregate of secured and unsecured debt owned by the company after buy-back (assuming full acceptance) would be more than twice the paid-up capital and free reserves of the company based on consolidated financial statements of the company, the offer is not in compliance with Section 68(2)(d) of Companies Act, 2013 and Regulation 4(ii) of SEBI (Buy-back securities) Regulations, 2018. You are therefore advised not to proceed with this buy back offer, read the order.
L&T’s consolidated debt-to-equity ratio is at 1.77 times, as on September, 2018. It would cross more than 2 times, if it went ahead with the share buyback, as per BloombergQuint’s calculations.
L&T had applied for approval based on its standalone numbers, said a company official on terms of anonymity. The regulation does not specify whether the application has to be based only on consolidated numbers, he added.
The buyback was open to those holding equity shares with record date of Oct. 15. It was also available to the holders of global depository shareholders if they converted them to equity shares by the same date.
This puts the government’s divestment target in jeopardy, as it was hoping to sell at least part of its 1.8 percent stake in the company by participating in the buyback offer.
“Going ahead, shall need to watch out for clarifications to SEBI by the company and whether SEBI accepts the same,” brokerage firm Motilal Oswal said in a note.
Buyback offers have become a popular route for Indian companies flush with cash to reward shareholders. Indian technology companies like Tata Consultancy Services Ltd., Infosys, Wipro and HCL Technologies Ltd. have carried out share buybacks recently.
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