Coal India shares down 1.4% after buyback move
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Coal India Limited (CIL) stock fell 1.41% on Tuesday in an otherwise strong market after the state-owned miner said on Monday it would buy back 10.89 crore shares worth `3,650 crore.
Market watchers said the cash on the company’s books could have been put to better use given the biggest beneficiary of the buyback will be the government which holds 79.6% in the firm.
The company will buy back shares from investors at a price of `335 apiece, a 5.7% premium to its Tuesday’s closing price of `316.85 which was also 1.14% lower than its previous closing. According to experts, concerns over utilisation of the company’s cash hoard caused the stock to decline.
As per the balance sheet CIL has cash and equivalents on its books to the tune of `38,312.70 crore. The buyback would not excede 25% of the aggregate fully paid up equity capital and free reserves of the company as per audited accounts for the financial year ended March 2016.
The Securities and Exchange Board of India (Sebi) amended the buyback rules in 2013 specifying the minimum amount that a company is required to buy back should be 50% of the offer size, against the earlier practice of 25%.
SEBI also limited the buyback period to six months, from the time the approval has been sought from the board or shareholders, because it found that companies typically did not utilise the entire period of one year to complete the buy back.
Buyback activity has picked up during calendar 2016 as management of corporates whose stocks are trading a reasonable valuations and have surplus cash on books are opting for them.
According to Prime Database, announcements have been made for buying back shares worth `2,220 crore in 2016 so far. In FY15, the total value of shares bought back was `650 crore.
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