Shares of Larsen Toubro may see a gap-down opening on Monday after market regulator Sebi denied permission for 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 company not to proceed with buyback.This is negative for shareholders and especially who took positions on this.
There would be a negative gapdown on Monday and might impact valuations in short term.
We recommend sell for short and medium term holders, Sameer Kalra, Equity Research Analyst Founder, Target Investing said.
This will set trend for heavy debt companies to not propose buyback but go for dividends, which has a higher tax outgo." The scrip on Friday settled 2.07 per cent down at Rs 1,318 while BSE Sensex closed flat at 36,387.LT had proposed to buy back up to 6.1 crore shares from shareholders at a price of Rs 1,475 per equity share, aggregating Rs 9,000 crore.
The offer was open to those holding equity shares as on October 15.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, market regulator said in a letter to company.Sebi has denied buyback proposed citing that post buyback, debt (secured and unsecured) amounting to Rs 1,23,533 crore is twice free reserves and paid up capital of Rs 56,346 crore and cash of Rs 7,513 crore.
This is in non-compliance of Sebi's regulations, according to Target Investing.Since announcement of buyback in October, shares of engineering and construction conglomerate rallied nearly 5 per cent till January 18 whereas benchmark Sensex gained 3.5 per cent during same period.A K Prabhakar, Head of Research, IDBI Capital Markets, said, Earlier, because of buyback announcement, only share prices went up.
There is a high possibility that we may see a gap-down opening on Monday as many investors are holding this stock.He added: "Companies are going for buyback as it is only way to reduce tax incidence.
If taxation is brought to reasonable levels, than companies may prefer dividend.