The state-owned power producer said that it is considering equity buyback on November 2. In October, the company filed with the SEBI, seeking relaxation on the strict buyback norms has received approval from the market watchdog.
Buyback of equity shares is the opposite of going public – a company buys back its shares from existing shareholders in the market at a discounted or premium rate. There can be several reasons for a firm to decide equity buyback. One is corporate restructuring – acquisition and merger. In case of NTPC, it approached SEBI to get approval on equity buyback as it is planning a consolidation of its wholly-owned subsidiaries. SEBI has allowed NTPC certain exemptions from buyback norms for this reason.
The decision is now pending from the Board of Directors, which the company informed will meet on November 2. In a filing with BSE, NTPC mentioned that its board would meet to decide on two main issues.
- Approving unaudited financial result of the company for the half-year ending on September 30. and,
- Considering the proposal for possible equity buyback
Last year November, the board of directors approved a merger of Power Generating Company Ltd and Kanti Bijlee Utpadan Nigam Ltd, two subsidiaries of NTPC with the parent company. After that decision, NTCP approached SEBI to receive approval on their buyback plan and get relaxation to the existing norms.
NTPC is exploring the idea of equity buyback from existing shareholders on a proportion basis through tender offer route, if they receive the approval. NTCP requested relaxation sine SEBI doesn’t approve a buyback when an amalgamation plan is in the offing. It also prevents companies from making a public announcement regarding buybacks when there is a possibility for amalgamation as it might increase opportunities for speculation.
SEBI has exempted NTPC on both counts. It suggested in its note that NTPC buyback scheme will benefit the shareholders as they will receive surplus cash from returning the shares. NTPC has also confirmed that there will be no new issue of shares, and the existing shareholding pattern will also remain unchanged post-merger.
The Other Angle
A recent report suggested that the government is going to ask some state-owned companies to file for buyback of equity shares as it is shoring up finances amid the pandemic situation. The fiscal gap is widening as tax earnings have slowed down. Meanwhile, the government couldn’t manage to raise more 3 percent of its Rs 2.1 trillion targets from selling off state assets. In this situation, it might be looking at a severe economic crisis.
A total of eight state-owned companies are asked by the government to consider share buyback to bolster its divestment kitty, NTPC is one of them.
It will give the Modi government a possible lifeline to managing depleting sources of income. The government, being the largest stakeholder in these companies, would benefit from tendering its shares against cash receipt. The Modi government can receive up to Rs 40,000 crores by liquidating its holding in these companies. However, there is no confirmation on this news yet.
After SEBI approval, the company now has to get permission from its existing shareholders to enact the buyback scheme. However, NTPC shares rallied 3 percent in the market after the buyback announcement.