AS BUY-BACK OFFER OF L&T DOES NOT MEET POST BUY-BACK DEBT-EQUITY RATIO , SEBI REFUSED TO APPROVE THE L&T’s BUY-BACK PROPOSAL.

AS BUY-BACK OFFER OF L&T DOES NOT MEET POST BUY-BACK DEBT-EQUITY RATIO , SEBI REFUSED TO APPROVE THE L&T’s BUY-BACK PROPOSAL.

SEBI TURNS DOWN L&T'S RS 9,000-CR SHARE BUYBACK CITING COMPLIANCE ISSUES

L&T applied for the buyback in compliance with the required ratio post buyback on the basis of its standalone financial statements.

L&T’s BUY-BACK OFFER OF RS 9000 Crores

The Securities and Exchange Board of India (Sebi) has denied approval to Larsen & Toubro’s (L&T’s) Rs 9,000-crore share buyback plan, citing compliance issues over its post-buyback debt-equity ratio.

SEBI’s DENIAL OF APPROVAL FOR L&Ts BUY-BACK CITING COMPLIANCE ISSUES

“You are, therefore, advised not to proceed with this buyback offer,” the market regulator wrote in its January 18 letter to L&T. “Since the ratio of the aggregate of secured and unsecured debts owed after the buyback would be more than twice the paid-up capital and free reserves based on consolidated financial statements, the buyback offer is not in compliance.”

FIRST-EVER BUY-BACK OFFER BY L&T

In August last year, the L&T board approved its first buyback in 80 years of the company’s history, for up to 4.29 per cent of its paid-up equity capital, aggregating to a value of about Rs 9,000 crore, subject to approvals. This was the fifth largest by any Indian company in terms of amount proposed. L&T applied for the buyback in compliance with the required ratio post buyback on the basis of its standalone financial statements.

MANNER OF COMPUTATION OF DEBT-EQUITY RATIO

“The said basis for computation of debt-equity ratio based on the consolidated financial statement appears internal to SEBI and is not specified in its buyback of securities regulations,” said an L&T executive, who did not wish to be named. “L&T would not have initiated the buyback proposal had the basis of computation of the ratio been specified in the regulation.”

IMPROVING COMPLIANCE AND GOVERNANCE BY SEBI

“It is heartening to note that SEBI has started looking into such details which will go a long way in improving compliance and governance. In this particular case, there seems to be a difference of opinion between Sebi, the company and analysts.

Under the Companies Act, standalone is considered, but for a real analysis, all ratio should be taken including consolidated as it reflects the true financial picture.

WHAT WILL BE L&Ts FUTURE OPTION ?

It is not clear whether L&T will look to revise its buyback offer in compliance to its consolidated financial numbers or pursue the current offer and legally contest SEBI’s order. “It is to be noted that the consolidated financials of L&T includes debt of L&T’s financial services business which by its permitted operating model has debt-equity of nearly 6:1 times, well within the leverage permitted by the Reserve Bank of India,” the official quoted earlier added.

COURTESY { BUSINESS STANDARD