Cash Rich Companies Propose Share BuyBacks To Curb Free Fall In Share Prices

At a time when there has been seen brutal sell-off in the Indian markets in line with global peers over concerns of economic recession led by coronavirus outbreak, companies flooded with cash are considering share buybacks to restore investor confidence.

Cash Rich Companies Propose Share BuyBacks To Curb Fall In Share Prices

Nonetheless, what is not welcoming here is the proposed tax on buybacks and in the wake of it market participants, companies and company promoters are requesting the centre to withdraw the same for at least one year's time.

Companies that have Proposed/Announced Share Buybacks

Corporate	No. of shares approved for buyback from investors	Buyback price	LTP as on March 19, 2020
Sun Pharma	4 crore shares or 1.67% of the company's equity capital worth Rs. 1700 crore	Rs. 425	Rs. 364.05
Thomas Cook	2.6 crore shares for an aggregate amount of Rs. 150 crore	Rs. 56.50	Rs. 27.50
Supreme Petrochem	Buyback amount Rs. 6267 lakhs	Rs. 185	Rs. 126

Other Companies Considering Buyback

Emami, a consumer goods company will also meet today to consider share buyback. In the last one month, the company's share price has fallen to Rs. 188 from Rs. 272.

Kalpataru Power Transmission has also called upon a board of directors meet on March 24, 2020, inter-alia, to consider the proposal for buy-back of fully paid-up equity shares of the Company and other matters incidental thereto in accordance with the provisions of the Companies Act, 2013 and rules made thereunder and SEBI.

"Many more companies may announce buybacks in coming days but government should remove or at least suspend the buyback tax for a year so that companies or promoters who have faith in their business can buy back shares from the market during this carnage," said Raamdeo Agrawal, chairman, Motilal Oswal Financial. "Corporate resources are much bigger than any other resources which can bring stability to the stock price."

While the indices have crashed by a huge 32%, stock prices of some of the cash-rich companies have sunk by up to 50% and to push back the prices higher, companies are considering buybacks.

"Buyback tax should be removed immediately and companies that are confident should be encouraged to buy back their shares and bring stability to the market," said Anil Agarwal, chairman, Vedanta Resources in a recent television interview. "All over the world, there is no tax on buyback, but India has a 22% tax."

Notably, in the Budget 2019 announcement, Union Finance Minister Sitharaman proposed a share buyback tax of 20% on listed corporate.

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