Buyback of Shares by MNCs in India

            

Details


Themes: Financial Markets
Period : 1997 - 2002
Organization : SEBI
Pub Date : 2002
Countries : India
Industry : Financial Services

Buy Now


Case Code : FINC018
Case Length : 12 Pages
Price: Rs. 300;

Tools



ICMR India ICMR India ICMR India ICMR India RSS Feed



<< Previous

Buy or Not to Buyback?

The dilemma that faced small investors in India was whether the buyback option, along with the SEBI guidelines, actually protected their interests and offered them an exit option at a fair price or was it a tool that provided them with no options allowing large MNCs to gain complete control of their subsidiaries.

Investors felt that the regulations framed by SEBI did not have provisions for preventing good stocks from delisting. Moreover, the buyback price, which was determined using the parameters specified in the SEBI Takeover Code, did not consider the future potential of the stock (Refer Exhibit III for details of pricing parameters of open offers). They felt that SEBI should have looked at various financial parameters such as future cash flows, value of brands and the value of fixed assets to determine a pricing formula for open offers which ensured that investors who had been holding the stock for several years received a fair price for their investment.

Questions for Discussion

1. What were the objectives of the buyback ordinance issued by the Government of India in 1998? Describe the salient features of the buyback ordinance. Why did MNCs want to buy back the shares of their Indian ventures? Explain.

2. The depressed stock markets in India are being utilized by several large MNCs to increase their stake in their Indian subsidiaries through the buyback of shares. Explain in detail the different methods of buyback available to an organization.
 
3. According to minority shareholders, MNCs had misused the buyback option. Explain the various grievances of minority shareholders regarding the buyback of shares.

4. Do you think stringent measures should be introduced to protect the interests of small investors? What should SEBI do to safeguard small investors' interests and resolve their grievances?

Exhibits

Exhibit I: The Buyback Process
Exhibit II: Concept Note – Methods of Buyback
Exhibit III: Pricing Parameters for an Open Offer to Buyback Shares