With share prices,especially of Real Estate Stocks arguably falling even below the Dead Sea Level (that’s below Sea Level and therefore sinking or drowning),Investors have seen quicksand erosion of wealth…DLF to shore up confidence has announced a Buy back Intention…They plan to buy back their shares …this can be through Open Market operations upto a predecided Share price and Fund Size Limit or they can issue a tender invitation to existing shareholders to submit their shares for Buy backat a decided price.
There is no harm in this exercise except for the fact that DLF has just raised funds in 2007 through an IPO at Rs 525 per share…over 88% of the equity is with the promoters,whose holding cost is virtially free, and they need atleast 10% floating stock to remain listed…SEBI should ensure that only cash from operating profits are used to buy back shares and not cash received from premium in the IPO and other placements…this would not be correct as Buy Back of Shares was never and could not be an object to the issue and it would be unfair to shareholders who supported the Primary Issue at a price of Rs 525 when the market price is below this
DLF can buy back less than 2% of the equity only but the outlay for this could easily be Rs 1500 crs
Reproducing our take in “SCRIPTECH SCAN” on the DLF issue in June 2007 in the price band of Rs 500 to 550
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