Shares of Larsen Toubro went off rails early Monday, plunging over 2 per cent, after market regulator Sebi turned down its Rs 9,000 crore share buyback offer.In a regulatory filing to stock exchanges, LT said Securities and Exchange Board of India (Sebi) has asked it not to proceed with buyback.The scrip was trading 2 per cent down at Rs 1,291.85 at around 9.25 am while BSE Sensex went up 47 points, or 0.13 per cent, at 36,434.
Since ratio of aggregate of secured and unsecured debts owed by company after buyback (assuming full acceptance) would be more than twice paid-up capital and free reserves of company based on consolidated financial statements, buyback offer is not in compliance with Companies Act and Sebi norms, regulator said in a letter to company.LT had proposed to buy back up to 6.1 crore shares from shareholders at a price of Rs 1,475 per share, aggregating Rs 9,000 crore.
The offer was open to those holding equity shares as on October 15.Heres what brokerages said after Sebi rejected LTs share buyback.
CLSAGlobal brokerage CLSA believes that regulator is mistaken in looking at consolidated financials of LT.
It thinks that board of engineering conglomerate may approve a one-time large dividend of Rs 53 per share this week.
The brokerage house is bullish on LT with a target price of Rs 1,730.
It recommended buying LT as company is a good proxy for domestic capex.
JP MorganBuyback denial by Sebi on technicality of leverage comes as a negative surprise, according to JP Morgan.
Better than expected core PL performance in Q3 may assuage worries around execution, brokerage house said.
MacquarieMacquarie maintained Outperform rating on LT with a target price of Rs 1,880.
The global financial services firm believes that company may explore alternative methods to redistribute excess capital.
NomuraNomura believes that cancellation of LT buyback poses risk to ROE estimates by around 150 basis points.
Special dividend is an alternative since buyback option is effectively ruled out post Sebi ruling, brokerage house added.LT had considered standalone FY18 financial statements.
However, Sebi had considered consolidated financials this difference in interpretation led to cancellation of buyback, Nomura said.
The brokerage house maintained Buy on LT with a target price of Rs 1,640.Target investingSebis decision is negative for LT shareholders and especially who took positions on this, Target Investing said in a note.
They recommend sell for short and medium term holders.
It will set a trend for heavy debt companies not to propose buyback but go for dividend which has higher tax outgo, brokerage house said.