As the date for National Hydroelectric Power Corp’s (NHPC) board meeting draws close, investment bankers expect the buyback price to be set in the range of R30-36 a share — a hefty premium of 52-80% to the current market price.
The buyback could help the government raise at least R4,200 crore. Investment bankers expect the buyback of shares to be done via the tender offer method, which allows a company to buy back shares at any price subject to a pre-approved ceiling price. Also, the tender offer method is the only way the promoter or promoter group (the government in this case) can participate in the buyback of a company.
Bankers said since NHPC came out with its initial public offer (IPO) less than five years back, the company may choose to buy back shares at the IPO price of R36/share so as to offer a good exit opportunity to existing shareholders.
?The thumb rule is that since NHPC came out with its IPO in 2009, the buyback should ideally be done at the IPO price. The company may not want to disappoint shareholders, who invested in the company at the time of the IPO,? said a senior official of a domestic investment banking firm. “From the government’s perspective, the buyback is a good thing as it is a very legitimate way for the Centre to get cash and bridge its fiscal deficit gap,” the banker added.
Bankers said the company will require shareholders’ nod as the buyback exceeds 10% of the total share capital, but is well within the maximum 25% limit that the company can buy back. The government plans to offer 140 crore shares, or 11.36% stake, in the hydel power-generation company.
Bankers also said that shareholders who do not tender shares would continue to benefit as the share buyback would result in a fall in share capital, which automatically boosts the earnings per share (EPS). However, the share buyback will be a loss to the management as extra cash will go out of the company.