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RIGHTS ISSUE AND BUYBACK

RIGHTS ISSUE AND BUYBACK. RIGHTS ISSUE. Also known as Privileged subscription. Issuing rights to a company's existing shareholders to buy a proportional number of additional securities at a given price (usually at a discount) within a fixed period. RIGHTS ISSUE. Why? Increased liquidity

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RIGHTS ISSUE AND BUYBACK

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  1. RIGHTS ISSUE AND BUYBACK

  2. RIGHTS ISSUE Also known as Privileged subscription. Issuing rights to a company's existing shareholders to buy a proportional number of additional securities at a given price (usually at a discount) within a fixed period.

  3. RIGHTS ISSUE • Why? • Increased liquidity • Better leveraging opportunities • Maintains proportionate ownership

  4. TATA STEEL Ratio 1:5 Announcement: 17th April, 2007 Record date: 5th November, 2007. Issue will open on November 22 and close on December 21, 2007 Issue is priced at Rs. 300 per share. 43.1% lower than the stock's closing price of Rs.528. Rights offer of equity shares to raise Rs.3,654 crore.

  5. TATA STEEL Effect of Rights issue on Market price: 17/04/2007 Rs. 468 5/11/2007 Rs. 879 13/11/2007 Rs. 825 Calculations 5 Shares bought on Record date at CMP: Rs.4395 1 Share received in rights issue: Rs.300 Average value per share: Rs.782.5

  6. State Bank of India Ratio 1:5 Announcement: 14th January, 2008 Record date: 4th February, 2008 Issue is priced at Rs.1590 per share at 35% discount on market price of Rs. 2462. Issue size: Rs 16,736.31 crore. Reasons

  7. State Bank of India • Effect of Rights issue on Market price: • 14/01/2008 Rs. 2323 • 4/02/2008 Rs. 2185 • 27/02/2008 Rs. 2082 • Calculations • Average cost of 6 (5+1)shares purchased on 14th : Rs.2200 • Average cost of 6 (5+1)shares purchased on 4th : Rs.2089

  8. BUY-BACK Buyback is reverse of issue of shares by a company where it offers to take back its shares owned by the investors at a specified price. Why Buy-Back? Unused cash Tax gains Market perception Exit option Show better financial ratios Increase promoters’ stake

  9. HUL Board of Directors - July 29. Shareholders - September 14. Buyback commenced – 3rd October & ended on 31st January. Rs 630 Crore to Buy Back. Open market purchases through the BSE and the NSE.  Total no. of shares bought back is 3,02,35,772 equity shares of Re.1 each. Average price of Rs.207.13.

  10. HUL Before Buy-Back EPS- Rs.8.05 P/E ratio- 23.6 times CMP- Rs.190 After Buy-Back (current) EPS- Rs.8.75 P/E ratio- 25.25 times CMP- Rs.220

  11. RIL The Buy-Back scheme started from January 10, 2005 to December 26, 2005. The buyback was approved at Rs 570 per share. Total Buy-Back limit Rs.29.99 billion Provision for the buyback scheme from its reserves of Rs.300 billion. Open market purchases through stock exchange.

  12. RIL Before Buy-Back EPS- Rs.37 P/E ratio- 14.05 times CMP- Rs.520 One month after commencement EPS- Rs.39 P/E ratio- 14.75 times CMP- Rs.575

  13. Thank you

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