Cairn on January 23 launched its first ever buy back of share for extinguishing them. The issue where Cairn will spend Rs 5,725 crore out of its cash reserves of Rs 13,707 crore, is to close on July 22.
"Till March 31, 2014, we have bought back 3,270,549 shares for a total consideration of approximately Rs 106 crore from the open market through stock exchanges," the company said in its fourth-quarter earnings statement.
Cairn wants to buy as much as 17.09 crore shares, or 8.9 per cent of the equity, from the open market at not more than Rs 335 apiece in the buyback programme. If the programme is successful, Agarwal's Vedanta Group ownership in Cairn India will rise to 64.53 per cent from 58.76 per cent.
"On the backdrop of strong cash flows generated through our operational excellence and world class asset base, we have also opened the Equity Share Buyback programme as a shareholder reward mechanism, at a price not exceeding Rs 335 per share," it said.
Cairn dropped 3.27 per cent to close at Rs 353.30 on the BSE stock exchange yesterday.
The buyback hinged on participation of the firm's former promoter, Cairn Energy plc of UK which still holds less than 10 per cent stake in the company. However, it has been barred by the income-tax department from disposing of its residual stake in the firm pending settlement of a tax dispute relating to alleged capital gain
it made in 2006-07.
UK's Cairn Energy sold a majority stake in Cairn India to the Vedanta Group at Rs 355 a share, a level the scrip scaled for the first time in last one year in April. The maximum buyback price represents an over 4 per cent premium compared to the average of the weekly high and low of the closing share price of the company on the stock exchanges during the two weeks preceding the board approval on November 26, the company had said announcing the share buyback in January.
A buyback is a process where a company repurchases outstanding shares to reduce their number in the market. Companies buy back shares to increase their value by reducing supply or to eliminate potential threats by shareholders who may be seeking a controlling stake.
While a buyback is considered an efficient way to return capital to shareholders, it also indicates the company doesnot have significant capital expenditure plans and may not be looking at any major acquisitions.