Larsen & Toubro (L&T) has asked the Securities and Exchange Board of India (SEBI) to reconsider its Rs 9,000 crore buyback proposal, which the market regulator had scrapped earlier, according to a report by The Economic Times.
SEBI had rejected the proposal in January on grounds that the group’s secured and unsecured debts would be more than twice the paid-up capital and free reserves of the company, based on its consolidated financial statements after the completion of the share buyback programme.
A buyback is a corporate action in which a company buys back its shares from existing shareholders, usually at a price higher than the current market price. In simple terms, a buyback allows companies to reduce the number of shares outstanding in the market and increase the proportion of shares a company owns.
The market regulator’s move sparked debate in the market, prompting the group to file a review application with the regulator.
“If there is an error on the part of the regulator, the entity can always point out the error and ask the regulator to review its previous position,” Sandeep Parekh, Founder, Finsec Law Advisors, told the paper.
If the company is still aggrieved, then it has the option of approaching the Securities Appellate Tribunal (SAT), Parekh added.
L&T wants to complete the buyback within one year from the date of the announcement, sources told the newspaper. The company had announced the buyback plan on August 23, 2018.
This is probably the first time the regulator has raised the question of consolidated financial metrics versus standalone financial metrics, analysts told the newspaper.
As per SEBI’s 2018 buyback rules, the ratio of aggregate secured and unsecured debt owed by the company after the buyback should not be more than twice the paid-up capital and reserves of the company. The rule, however, does not specify that the computation of the debt-to-equity ratio has to be on consolidated financials as was the case in L&T. The engineering behemoth had approached SEBI for approval of its share buyback proposal based on its standalone financial ratio.
L&T is also exploring other options. “SEBI has written saying they don’t approve the buyback as they see it. We are evaluating various options. The reason for rejecting is that they included the financial subsidiary. It’s a bit harsh. We are studying it and will decide what has to be done,” L&T’s CEO SN Subrahmanyan had said last month.