Post-Satyam, govt wants to find out whether firms’ intentions are genuine.
The government is planning to ask the Securities and Exchange Board of India ( Sebi) to check the financial position of all companies which have announced buyback of their equity, but have deferred the scheme or have not started it as yet.
Taking a cue from the Satyam episode, sources familiar with the developments said such an exercise will prove whether the buyback schemes were announced as a genuine measure to consolidate promoter equity holding in the company, or just a gimmick to stabilise prices and thus provide an exit route to the institutional stakeholders .
The scope of the exercise will be one year to begin with and then extended further.
The study will not only check the reserves position but will also try to find out the "real surplus" available with the companies to fund the buyback programmes. It will also ascertain whether the companies concerned have made any other provisions for such funding. The ratio of book value to the share price will be a good measure to check the real asset position of the company. Any ratio of 2:1 or above indicates very poor asset position, the sources said.
The regulator is already looking into the Satyam case where the company announced that its board will consider buyback despite prior knowledge that the company's reserve position cannot support such a programme. While the buyback was never announced, various domestic institutions and foreign institutional investors sold their shares in the market and exited. This gives credence to teh view that some promoters may be using a buyback announcement as a ploy to stabilise the prices and to provide an exit route to the institutions.
According to data available with the Business Standard Research Bureau and the stock exchanges, 58 companies announced buyback of their equity in 2008. Around 18-20 of these companies have either deferred it, or have not started the programme. The companies which have deferred their equity buyback programme include Banco Products, Bhagyanagar India, Polaris Software, Zee Entertainment, Everest Kanto Cylinder and Sun TV Network.
Those who have announced a buyback, but have not yet started it include Gemini Communications, Zen Technologies, Ganesh Housing Finance, Godawari Power, Eicher Motors, Sandesh, Deccan Chronicle, LKP Finance, Gitanjali Gems and ICI.
Most of the companies who have not yet deferred the programme have registered an increase of 8-30 per cent in their share prices since the time the buybacks were announced.
Correction
Binani Industries has clarified that it has not announced any buyback of shares. The report had wrongly stated that Binani Industries was among the companies that had announced a buyback of shares. The error is regretted.
