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SEBI`s Rejection of Larsen & Toubro`s Buyback Offer |
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EXCERPTS |
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L&T, an Indian multinational conglomerate, was started as a partnership firm Henning Holck-Larsen and Soren Kristian Toubro in May 1938. L&T had interests in infrastructure, power, engineering products, defense, information technology, and financial services, among other things. (Refer to Exhibit II for the business structure of L&T). Infrastructure, the largest segment, contributed almost half of the revenue of the company in FY18. This segment was followed by Hydrocarbon (9.8% share of revenue), Information Technology and Technology Services (9.3%), and Financial Services (8.4%) (Refer to Exhibit III for FY18 revenue composition). By the end of FY18, the company had 93 subsidiaries, 8 associates, 34 joint ventures, and 33 joint operations. L&T had three listed subsidiaries – L&T Infotech Limited, L&T Technology Services, and L&T Finance Holdings Ltd... |
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PayPal (7 USD)
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| THE PROPOSED SHARE BUYBACK |
| On August 18, 2018, as per section 29 (1)(b) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, under the signature of N. Hariharan, Executive Vice President and Company Secretary of L&T, the stock exchanges (Bombay Stock Exchange (BSE) and National Stock Exchange (NSE)) were informed about the upcoming meeting of L&T’s Board of Directors (BoDs) on August 23, 2018, to consider L&T’s first ever equity share buyback proposal... |
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| SEBI REJECTS BUYBACK PROPOSAL |
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Through a letter dated January 18, 2019, SEBI informed JM Fin. Ltd. about the rejection of the L&T buyback plan. The SEBI’s letter signed by Assistant General Manager Arjun Prasad stated, .
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| OPTIONS BEFORE L&T MANAGEMENT |
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SEBI’s rejection of the buyback proposal put the brakes on L&T’s plans to use unutilized cash and improve its ROE. An analyst commented, “The buyback was an attempt to improve the return on equity as the share was considered to be under-valued. In the absence of a buyback that will not happen now...
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| QUESTIONS FOR DISCUSSION |
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1:Do you agree with SEBI’s decision? Explain with reasons.
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| EXHIBITS |
Exhibit I: Year-wise Details of Buyback Issues in India from FY1998-99 to FY2017-18
Exhibit II : Business Structure of L&T
Exhibit III : Revenue Composition of L&T in FY18
Exhibit IV : Selected Financial Information about L&T (in Rs. Billion)
Exhibit V : Statement of Permissible Capital (including premium) as at March 31, 2018
Exhibit VI : Regulatory Framework of Buyback of Securities in India
Exhibit VII : Shareholding Pattern of L&T
Exhibit VIII : Debt to Equity Ratio Pre and Post Buyback as of September 30, 2018
Exhibit IX : Share Price Movement of L&T Stock at NSE from August 1, 2018, to January 31, 2019
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