Friday, May 16, 2008

SEBI Eliminates Gimmickry in Buybacks

In December 2007, I wrote about a stock buyback announcement made by Mastek (MAST@IN). See "The Mystery Behind Mastek's Buyback."

In that post, I had written:

"Why did the company give a maximum price of Rs 750 per share for its buyback, even though the current market price is Rs 280 per share? Indeed, adjusted for stock splits and bonus issues, this company has not seen its stock price hit Rs 750 in the last seven years."

That post attracted many comments some of which dealt with the possible gimmickry in buyback announcements when buybacks are to be conducted thru open market purchases.

Fast forward to today when Mastek published an important notice in The Financial Express (page 11, New Delhi edition dated may 16, 2008). The company disclosed that SEBI has directed it to:

1. place orders for buying back shares from the market "at least once a week at market related prices during the periods when the market price is lower than the maximum buy-back price such that the amount of buy-back is exhausted expeditiously"; and

2. not to close the buyback without completing it except under exceptional circumstances, with prior approval of SEBI.


That will put a stop to some of the gimmickry.

Good work SEBI.


Anonymous said...

Good show on part of SEBI but much more to be done. SEBI should have prescribed some limit ( even a small percentage of the numbers of shares to be bought through buyback) on numbers of shares to be bought every week.

Anonymous said...

Sof they do put an order every week for 1 share they would comply with the first direction. However, the direction not to close the buyback without prior permission and to consume the amount expeditiously will probably plug that loophole. SRF has done this previously also. It is now infact in the midst of another buyback in which max buyback price is 30% premium to cmp. For a change they have actually bought back about 10 lac shares at about 12 crores(that is less than 20% of allocated amount)

Anonymous said...

Dear Sanjay

Stumbled across your blog and website. Very interesting reading, especially about your personal travails. Inspiring to say the least. What also caught my eye (amongst the other financial description) was the term "shareholder activist".

I had a question for you - When do you think SEBI (which agreeably does some very good work otherwise) get the better of promoters who take the minority shareholders (and for that matter the market) for a ride. I am not talking small time nameboard companies housed in some backlane of a small town - I am talking about business houses which are supposedly the beacons of corporate governance in India!!!

You would surely be aware of the Bharti Telecom Ltd - issues faced by the minority shareholder after delisting of the company. This is a company which has blatantly (presumably while being within the rules of the game) ignored the rights of the minority shareholders. Equity worth thousands of crores has been sold / bought / placed over the last few years by the promoters - many international companies / entities have been involved in these transactions. Yet, minority shareholders (holding approximately 2 lac shares or about 1% of the total equity) still dont have an exit route except for the ridiculous offer of 1% of the real value of these shares (this value is not a wishful perception - the promoter group are themselves selling their holdings at 100 times the purchase price being offered by them to the minority shareholders). How can the market regulator prevent such blatant discrimination. I hope that they will also be able to come out with some guideline regarding prevention of such unfortunate situations.

Would it not be better for the group to allow for the next investor in the company who is anyway paying the actual value to buy a stake in the company to also offer the same option to the small shareholder. This would certainly enhance the image of these business houses (and at no direct cost to them - except for the loss of profit which would be made by forcing the small shareholder to sell to them after which they can sell further at 100 times the buying price). Wonder if this makes sense to anyone !!!