Sona Nair
Ankita Alwe
Synopsis
Introduction
Meaning
Objectives of Buyback
Provisions under the Companies Act ,1956
SEBI Guidelines
Effect of Buyback of Shares
Effect on the Financial Ratios
Case Study-HUL
What is buy back ??
FUNDING OF BUY BACK
Out of:
(i) Free reserves; or
(ii) Share premium account ; or
(iii) Proceeds of fresh issue
A Company cannot buyback its shares out of
the proceeds of an earlier issue of the same
kind of shares.
Reasons for buy back
Unused cash
Tax Gains
Market perception
Financial ratios
Benefits of buy back
Creation of goodwill
Methods of buy back
Tender Offer
Open Market
Book-building process
E.g. with hypothetical data
Current market price : Rs 45/share
49 50000 70000
50 30000 100000
45000 145000
51
Introduction
RESTRICTION ON PURCHASE OF ITS OWN
SHARES BY A COMPANY
b. A special resolution
c. The buy back is less than 25% of total paid up equity capital and
free reserves
Amount to be invested
a. bonus shares; or
b. conversion of warrants, or
c. conversion of preference shares or debentures into equity
shares
MAINTENANCE OF REGISTER Sec 77A(9)
Company shall maintain a register of the :
a. Securities so bought,
b. Consideration paid,
c. Dates of cancellation, extinguishing and physically destroying of
the securities, and
d. Other particulars as prescribed.
For default:
FII/NRI 16.17%
Institutions: 10.44%
Public: 15.19%
Balance Sheet of HUL Ltd. As on 31-3-2010 (Rupees in crs)
Particulars 31-3-2010 31-3-2011(E)
(A) Sources of Funds
1.Shareholder`s Fund
Capital 218.17 174.536
Reserves & Surplus 2450.76 1864.394
2668.93 2038.93
2.Minority Interest 10.46 10.46
3.Loan Funds
(a)Secured Loan 10.49 10.49
(b)Unsecured Loan 0.35 10.84 0.35
TOTAL OF (A) 2690.23 2060.23