Buyback of Shares by MNCs in India

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Investor Grievances Contd...

Table IV
Share Prices on First Open Offer by MNCs

Source: www.myiris.com

Analysts also felt that the buyback option was not beneficial for small investors. Allowing MNCs to delist their shares from the stock market would deprive Indian shareholders of good investment opportunities. For example, in few companies including Philips, Carrier, Reckitt, Cadbury and Wartsila, the promoter's stake had almost crossed 90% (Refer Table V). Though these companies had not delisted their shares from the stock markets, there was hardly any trading in these companies' stocks.

Table V
Shareholding Pattern as on 30/6/2002 (In %)

Source: Indiainfoline.com
# Carrier Aircon has also made its final offer to acquire the remaining 8.84% of its stock. The offer opened on September 9, 2002 and would close on March 7, 2003.
* The foreign promoter Reckitt Benkiser had acquired 87.27% of Reckitt Benkiser India Limited shares by September 2002. It had already made an open offer for the remaining 12.73% in August 2002.

Analysts argued that like China and Indonesia, India must revert back to a system that prevented multinationals from delisting their shares from the stock exchange by prescribing a minimum amount of floating stock. The buyback by MNCs not only affected the small shareholders, it also had an impact on the stock exchanges. The buyback of floating stock resulted in a decline in the trading volumes. For example, the Delhi Stock Exchange was badly affected as MNCs accounted for more than 90% of the volume traded and 85% of the listing fees earned by the exchange before the buyback act was introduced. Given the negative impact of the Buyback Act, market observers felt that the act had failed to revive the capital markets.

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18] Premium on the market price prevailing on the date of announcement of the buyback.