While the exact details are not known, market experts view the proposal if approved as a positive for the stock and add that it would bring clarity to the use of $3 billion (R18,859.5 crore based on current exchange rates) of cash on Vedantas books.
Buying back shares means returning surplus cash to shareholders and increasing the underlying value of shares. It is also a cleaner way to use excess cash. The proposal certainly looks positive at the moment; however, we would like to wait for the details, said a Mumbai-based oil & gas analyst of an American investment banking firm, requesting anonymity.
Speculation is rife that UKs Cairn Energy, which holds a little over 10% stake in Cairn India, may be looking to exit the Indian entity through the buyback programme.Cairn Energy holds 10% stake in the company. The Securities and Exchange Board of India (Buy Back Of Securities) Regulations do not permit any company to selectively acquire shares from any shareholder.
The regulations require Cairn to announce the quantity of shares it intends to buy and allows the company to acquire these at a price, either higher than the market rate or the prevailing rate. The shares acquired would be held as treasury stock and later extinguished, resulting in a fall in the number of outstanding shares and raising promoters stake in the company. The company has convened a board meeting on Tuesday for considering a buyback of its equity shares. We expect to be able to share the details of the proposal after the board meeting, said a Cairn India spokesperson on Friday.
Assuming Cairn India acquires 10% of the 191.05 crore shares through the buyback programme, the total outstanding will fall to 171.945 crore. The reduced outstanding shares would mean that Vedanta Groups stake would rise to about 65.3%.
As per quarter ended September 2013 figures, Anil Agarwal-led Vedanta Group holds 58.76% stake in Cairn India. UKs Cairn Energy continues to hold 10.27% stake in the company, after having sold a majority stake in Cairn India to Vedanta Group at R335 per share.
The Cairn share jumped 3.09% or R9.80 after rising nearly 5% during Fridays session to settle at R326.95 per share. Over the last 52 weeks, the stock touched a high of R349.90 and a low of R267.90.