The Securities & Exchange Board of India (Sebi) has denied permission to Larsen & Toubro (L&T) for its Rs 9,000-crore share buyback offer. In a filing to stock exchanges on Saturday, L&T said the markets regulator has asked it not to proceed with the buyback.
“Since the ratio of the aggregate of secured and unsecured debts owed by the company after buyback (assuming full acceptance) would be more than twice the paid-up capital and free reserves of the company based on consolidated financial statements, the buyback offer is not in compliance with the Companies Act and Sebi norms,” the regulator said in a letter to the firm.
As per company sources, the said basis for computation of debt equity ratio based on consolidated financial statement appear internal to Sebi and is not specified in its buyback of securities regulations. “L&T would not have initiated the buyback proposal had the basis of computation of the ratio been specified in the Regulation,” said a source. L&T had proposed to buy back up to 6.1 crore shares from shareholders at a price of Rs 1,475 per equity share, aggregating to Rs 9,000 crore.
The offer was open to those holding equity shares as on October 15. This, the company told stock exchanges, is in accordance with the applicable provisions of the Companies Act, 2013 and the Securities and Exchange Board of India (Buy-Back of Securities) Regulations, 2018, considering the debt-equity ratio requirement on the basis of standalone financial statements, post buyback.
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While turning down the proposal, Sebi has applied the financial ratio based on the consolidated financial statement of the company. “It is to be noted that the consolidated financials of L&T includes debt of L&T’s financial services business, which, by its permitted operating model, has a debt equity of nearly 6:1, well within the leverage permitted by RBI,” according to a company source.