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Buyback of Shares

Buyback of Shares

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Published by Vinod
this is classic paper to know about buy back of shares in financial market
this is classic paper to know about buy back of shares in financial market

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Published by: Vinod on Jun 22, 2010
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02/23/2013

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Buyback 
 
Of Shares 
Chapter 1
Introduction To The Indian Capital Market
Competitive forces with the unleashing of the liberalization policieshave made corporate restructuring a sine quo non for survival andgrowth. Operational, financial and managerial strategies are employedto maintain competitive edge and turnaround a sickened performance.Financial restructuring involves either internal or external restructuring(i.e. Mergers and Acquisitions). In the internal restructuring an existingfirm undergoes through a series of changes in terms of composition of assets and liabilities.Section 100-105 of The Company's Act 1956 governs the internalrestructuring of a corporate entity in the form of capital reduction.Section 77A, 77B and 77AA now allow companies to buy back theirshares following the recommendations of committee on corporaterestructuring, which was set up by the government to propose variousstrategies to strengthen the competitiveness of the banking andfinance sector, companies are now allowed to repurchase their ownshares. This will enable the companies to catch up with other developedmarkets as part of the government's moves to liberalize the localmarket and hence emerged the concept of SHARE BUY BACK in theIndian corporate scenario.
Over 300 companies, including the Tatas, the Birlas andReliance, had passed resolutions -- taken shareholderspermission -- at their AGMs during the year 1997-1998.
 
Buyback 
 
Of Shares 
Sudden plethora…
Relative to the Indian context, the listing of various foreign players inthe earlier times on the Indian bourses was regulatory driven. Theyhad adequate funds in their kitty to pursue their own goals, both interms of funding their expansion and an inherent ability to outsourceand avail economic costs of production.
Why then did they still go in for an Indian listing?
In the 1970’s period, if MNC’s wanted to continue doing their businessin India, they could do so only by diluting their shareholding andgetting listed on the exchange. They were thus forced to go public.Now that the norms have been altered and they are permitted to carryon their business without any such compulsion, they would ratheroperate as wholly owned subsidiaries without being listed on thebourses.
 
Buyback 
 
Of Shares 
Chapter 2
Buy back of shares
Buy back of equity shares is a capital restructuring process. It is afinancial strategy that allows a company to buy back its equity sharesand other securities. In a changing economic scenario corporate sectordemands more freedom in restructuring debt-equity mix in times of favorable business environment.So far it was possible to refund shareholders' money through capitalreduction process. A company could buy back own shares obtainingpermission of the Company Law Board under the old provisions of theCompanies Act, 1956. By virtue of the newly inserted section 77A tothe Companies Act, 1956 through the Companies (Amendment)Ordinance, 1999, a new vista has been opened for flexible capitalstructuring by companies as and when necessary without involvementof any external regulatory mechanism.Buy back is a financial strategy - it should be used accordingly. It isnot for improving controlling interest of the ruling shareholding group.However, improvement of controlling interest occurs as a naturalconsequence of buy back strategy.In India, companies are lowly levered because of high incidence of debt cost. But so long a company can earn above the effective debtcost it is advantageous to create favorable leverage effect.
Share buy back is a financial tool for financial re-engineering. It is described as a procedure that enables acompany to go back to its shareholders and offers to

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