Business
Schools taught us , Companies do Buyback of Shares to enhance shareholders
value. But because of Budget,2016 and New SEBI Buyback Guidelines
, There are new reasons for buyback.
a) Do buyback instead of paying
Dividend to avoid paying Taxes.
b) Do buyback to use company reserves
for funding needs of Promoter / Government. (Instead of OFS)
I am writing this post on calculated
risk / Low risk Arb opportunity. Discussing on implication of Buyback
with above rationale can be by another blog.
There are spate of Buyback happening
in the Indian market by Private Sector companies and Public Sector companies. There is SEBI
guidelines that Buyback from Small shareholders (Holding shares valued at not
more than Rs 2 lacs) should be made as per there entitled share holding ratio
or 15 % whichever is higher (Refer SEBI guideline linked above).
It is noticed that small
shareholders may form more than 90 % to 95 % of the number of shareholders, but
they may not hold more than 5% to 10% of the share capital. Also Higher the promoter
holding, lesser will be holding of small shareholders in percentage terms.
It means the lesser the percentage
of Retail shareholding, Higher will be the acceptance ratio in Buy back., Also
there will be many long term investors, who would not want to tender the shares
(Also sometime, they wont, if their cost of purchase is higher), which will
further push up the acceptance ratio.
There will also be many big
Investors, who would not participate in such arb trade, they may not be able to
buy such quantity back from normal market without impacting prices. There will also
be large investors, who would not participate in Buyback as Arb returns may be
lesser than Tax impact on selling of shares.
Private sector companies like Wipro, Bharti
Infratel, Novartis came out with Buyback, They are doing buyback of shares, but
Promoters are also participating in buyback, clearly with an intention to get
money from the company and in more Tax effective way.
Recently PSU like National Aluminum
(Nalco) , MOIL and NMDC have declared Buyback, The Buyback seems done only
to give reserves back to promoters (Government), participation by other
shareholders in collateral.
But There is opportunity for small shareholders based on acceptance ratio. I will not calculate returns but try
to calculate acceptance ratio.
I will discuss my rationale of
Buyback opportunity in Nalco below as they have already asked for Postal Ballot.
National Aluminum : Nalco is a
profit making, dividend paying PSU, It has a dividend yield of almost 4 %, and
trades at PE of 15. Its book value is around Rs 52/-. It has buyback of Shares
at Rs 44/- (CMP 41.50).
We will look at share holding Data,
to arrive at acceptance ratio.
|
No of issued Shares
|
2577238512
|
|
% of Promoter holding (GOI)
|
80.93
|
|
No of small shareholders
|
80998
|
|
Qty held by small shareholders
|
52809370
|
|
% of Qty by Small share holders
|
2.05
|
|
Total Buyback qty
|
644309628
|
|
% of Buyback
|
25%
|
|
BB Qty for Small Share holders
|
96646444
|
|
in Buy back
|
|
|
Fund holdings
|
313062101
|
|
Fund holdings %
|
12.15
|
|
Other Major Shareholders
|
59987235
|
|
Other Major Shareholders %
|
2.33
|
|
BB Qty for Goi
|
443223814.8
|
|
BB Qty for Other Share holders
|
104439369.2
|
|
Total Floating Stock
|
491455890
|
|
Total share by large share
holding,
|
|
|
more that 1 %
|
265457683
|
From the above table, we can see
that, there is high probability of 100 % acceptance ratio for small share holders, If
it is bought now also, because The offer is to buy more than 9.66 crore shares
and there are only 5.28 in that bracket.
Also as LIC, Bajaj and Hindalco hold
chunk of 26.54 crore share, which I feel will mostly not be tendered in
Buyback. Also if we remove all Institutional shareholder and Share holder, the
remaining float would be 118406554. Whereas Buyback qty is much more.
There can be change in acceptance
ratio if Price falls, but then fundamental will come into play and many value
buyers will enter the market to support the price. Also to qualify GOI have put
its intention to tender 100 % qty of Buyback, (That may happen if price of
Nalco move above 44 /-)
I will calculate acceptance ratio of
other companies as and when they finalize their buyback QTY and Price, and send
it for approval of shareholders.
This is not a recommendation to
anybody whatsoever to buy OR sell this share, but it is my thought process and
views on this company.
I welcome your critical comments and
suggestions.
PS : I have some position in the
stock, So I can be Biased
