De-Jargoned | Buy-back of shares

De-Jargoned | Buy-back of shares

On 11 April 2011, Reliance Infrastructure Ltd commenced a buy-back offer of fully paid-up equity shares from the open market through stock exchanges. In other words, Reliance Infrastructure shareholders got an option to sell back their shares to the company.

What is buy-back?

Buy-back of shares refers to the repurchase of shares by the company from its shareholders. It could be done for a number of reasons, including increasing promoter holding, supporting the share value, countering a takeover bid or for delisting from exchanges. Every buy-back offer has to be completed within 12 months from the date of passing the special resolution or the Board resolution on the buy-back offer.

As per the Companies Act, the public announcement specifies a date to determine which shareholders qualify for the buy-back.

How to tender shares?

Information about a company’s buy-back is available with stock exchanges. When a company announces a buy-back, it makes a public announcement through a notice published in a national daily. The letter of offer and form of acceptance detailing the procedure is mailed to your registered address. You need to fill up the forms and mail it to the registrar (the company that manages the buy-back) within a specified time period.

If you don’t receive the letter and forms, you can still tender your shares by sending an application on plain paper. You need to mention details such as your folio number, name, address, number of shares held, share certificate number, distinctive numbers, number of shares tendered, in the application and attach the original share certificate. In case of demat holding, include the depository participant’s name (DP) and ID and your account number with the DP.

Transfer of shares: You can also tender shares for a buy-back if you are not a registered holder and have received such shares as a transfer. You will have to submit the transfer deed, along with the offer form and other relevant documents.

Share delisting: If the buy-back relates to delisting of a company’s shares, you can tender shares at the company’s offer price even if you cross the deadline of sending the application. This can be done within a year from the date of delisting of shares.

Should you tender shares?

It is not compulsory to accept a buy-back offer. You will continue to be a shareholder even if you don’t tender your shares. You need to take into account aspects such as price of buy-back, number of shares which may be accepted, current market price and valuation of the company’s share, among other things, before making a decision.

However, if the offer is made for the purpose of delisting, it is advisable to tender. Post delisting, the company may no longer need to adhere to the Securities and Exchange Board of India’s (Sebi) regulations and you may not be able to trade your stock.

In case you do not receive the payment after tendering shares, you can approach the merchant banker or the registrar of the offer. If not satisfied by the response, you can approach Sebi for redressal.