Swiss multinational power and automation company ABB cannot buy back shares in the Indian entity as it would end up violating clause 40A of the listing agreement for continued listing of equity shares and clause 4.1(a) of the Sebi delisting of shares regulations, 2009, say legal and capital markets experts familiar with the rules and regulations.
Experts with whom FE spoke to said that ABB’s holding in the Indian subsidiary stands at 75% and Sebi norms do not allow promoter’s share beyond 75% in listed Indian companies. Secondly, no Indian company can use share buyback or preferential allotment to delist, as per Sebi regulations.
?The company cannot do a buyback as it is right at the cusp of the minimum public shareholding norms. Nor can a company use buyback as a tool to delist their shares. The company will have to adopt a different process, and will have to provide the right exit to current shareholders, if it wishes to delist the shares, but that does not appear to be the case yet,? said a partner of a corporate law firm, who did not wish to be identified.
The ABB India scrip rose 10.25% in Tuesday?s trading to hit a 52-week high following the news of buyback plans, before ending the day with 3.26% gains. It closed at Rs 1,147 apiece, up Rs 36.25 from the previous close.
ABB CEO Ulrich Spiesshofer on Tuesday unexpectedly announced a $4-billion share buyback after the stock underperformed rivals, including Siemens AG, over the past year. While the company has not given the details of the buyback, analysts said the company may acquire shares in emerging markets, which contribute half of the group’s total revenue.
?Buying our own stock, giving $4 billion back to the shareholders, is a signal of confidence that we will create even more cash in future,? Spiesshofer was reported as saying. Apart from share buyback, ABB also set new long-term targets, saying it plans to increase operational earnings per share by 10-15% on a compound annual basis from 2015 to 2020. It targets boosting like-for-like sales by 4 -7% per year. The company said it will steadily increase profitability within a range of 11-16%.
ABB shares surged 2.4% in Zurich after the announcement, but were trading 1.44% higher at the time of going to print, Bloomberg data showed. Since Spiesshofer took over, ABB has risen 3.2%. Siemens, which announced a 4 billion-euro share buyback in November, gained 13% in the same period.