Larsen & Toubro Limited's Rs 9,000 crore mega share buyback proposal has suffered a setback with the markets regulator denying the nod, media reports say.
The Securities and Exchange Board of India (Sebi) has cited compliance issues over L&T's post-buyback debt-equity ratio to deny it the permission.
"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," Sebi said in a January 18 letter. L&T has forwarded the letter to the stock exchanges.
On the National Stock Exchange (NSE), the share closed on Friday at Rs 1,359.50, down Rs 26.55 or 1.97 per cent. Market analysts expect some selling in the scrip, but the impact is unlikely to be significant or long term. However, traders would be on side of caution through the week until the pricing in is complete.
The L&T board in August approved its first buyback programme in 80 years, for up to 4.29 per cent of its paid-up equity capital. This was the fifth largest by any Indian company in terms of the amount proposed, a report says.
The 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, L&T sources say. L&T would not have initiated the buyback proposal had Sebi specified the basis of computation of the ratio been in the regulation.
If the financials remained the same and the company funded the buyback is from the reserves, its consolidated net debt-equity ratio would have gone up to 2.26 times against 1.9 times based on its September 2018 consolidated numbers, according to a Business Standard report.
On a standalone basis, L&T's net debt/equity ratio would have gone up marginally from 0.17 times to 0.21 times, below the stipulated two-times ceiling.
L&T had said last year the buyback would have ensured a better return on investments to the shareholders. The company officials were then hopeful of completing the buyback in three months.
Last year L&T divested from a few non-core assets in a boost to its bottom line with the sale of its electrical and automation divisions at Rs 14,000 crore. A buyback valued at Rs 9,000 crore would have translated into higher cash outflows, which may now not happen with the latest development, a report said.