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L&T share buyback for Rs 9,000 crore rejected by SEBI; here’s what may happen next

Sushruth Sunder

Infrastructure major Larsen & Tuobro’s share buyback offer for Rs 9,000 crore has been rejected by capital markets’ regulator SEBI. In a regulatory filing with the stock exchanges, L&T said the Securities and Exchange Board of India (Sebi) has advised the firm against proceeding with the share buyback. Notably, SEBI has nixed the buyback offer, since the ratio of the aggregate of secured and unsecured debts owed 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.

“The buyback 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,” SEBI said. In October-18 , L&T had said proposed a share buyback programme for about 6 crore shares or 4.29% of the total paid equity share capital, aggregating to Rs 9,000 crore, The firm had fixed a share price of Rs 1,475. L&T shares closed at Rs 1,319.50 on Friday.

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Sharing the way forward, Ajay Bodke of Prabudas Liladher said that the investors would await L&T’s move, as to whther it will appeal against SEBI’s decision. “The market is likely to react negatively and await company’s next move whether it appeals against SEBI’s rejection or contemplates any other method to reward shareholders like a special dividend which will not be as tax efficient as a buyback would have been. This comes at a time when a section of the market is concerned whether there will be a downward revision in company’s previously announced order book guidance for FY 19,” Ajay Bodke, CEO & Chief Portfolio Manager, PMS at Prabhudas Lilladher said in a note to FE Online.

The primary rationale for announcing the buyback programme for L&T was to return excess cash to shareholders, and improve their return on equity, SN Subrahmanyan, managing director and CEO, L&T had said. We do have capex as we look into the future, we do have propositions of other businesses. Of course, we will continue to pay the dividend. Inspite of doing all this we will have surplus cash-on-hand. We have been promising our shareholders that we will be increasing our return on equity to a certain extent, and it is in that direction, he told in an interview to CNBC Tv18 earlier.