MUMBAI: While 2008 saw India Inc tighten its purse strings to combat a slowing economy and liquidity crunch, the year also saw many corporates spending sizeable sums on buying back their shares. One and a half dozen companies, including bluechips like Reliance Infrastructure and DLF, have bought back shares worth more than Rs 1,100 crore between March and December 2008. With share prices having fallen sharply during the year, promoters of many companies were able to raise their stakes cheaply.

Under a buyback programme, a company purchases its own shares in the open market. While the shares are usually cancelled, it can also keep them as treasury shares so that the company would be able to resell them in future. “There are many reasons why a company goes for a buyback. In a bad market, it offers the much-needed support to share prices.

Secondly, promoters get an opportunity to increase stakes in their companies without putting in their own funds,” said a merchant banker on condition of anonymity.

The combined value of the shares bought back by the 18 companies is much lower than their worth during the bullish market. They are estimated to have saved around Rs 2,000 crore, which is the difference between the actual cost of the shares bought back and their value calculated on the basis of 52-week high prices. It is assumed that the companies purchased shares at a closing price on a particular day.

For instance, based on statistics compiled by BSE, Reliance Infrastructure bought 120,000 shares on BSE and another 130,000 shares on NSE on March 25. ET considered the day’s closing of Rs 1300.2 on BSE and Rs 1298.5 on NSE for calculating the cost of 250,000 shares purchased on that day. The company has bought back a total of 92.6 lakh shares between March 25 and December 16.

Reliance Infrastructure plans to spend Rs 800 crore to buy back its shares at a price not exceeding Rs 1,600 per share. After scaling a peak of
Rs 2,632 on January 10, 2008, the share price crashed to as low as Rs 354 on October 27. It, however, recovered some ground in the subsequent period, before closing 4% up at Rs 585 on Tuesday.

In another notable example, Delhi-based realty major DLF has so far bought back 21.2 lakh shares under the offer, which opened on October 17, 2008. The company is planning to acquire its shares at a maximum price of Rs 1,100 per share for a total consideration of Rs 600 crore.

From as high as Rs 1,225 on January 15, 2008, shares have nose-dived to a low of Rs 158 on October 27, before closing at Rs 285, up 3.2%, on Tuesday.

source: Economictimes

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