Buy back of shares

Buy back of shares

1. BUY-BACK BUY-BACK
OF OF
SHARESSHARES

2. BINANI CEMENT BINANI CEMENT
Keynote corporate services Ltd on behalf Keynote corporate services Ltd on behalf
Binani Cement Ltd has issued this Public Binani Cement Ltd has issued this Public
Announcement to the Equity Shareholder Announcement to the Equity Shareholder
owners of the equity shares of target co. owners of the equity shares of target co.
is in compliance with SEBI Regulation ,is in compliance with SEBI Regulation ,
1999 & subsequent amendments thereof. 1999 & subsequent amendments thereof.
closure of the offer –August 10,2010.closure of the offer –August 10,2010.

3. HUL BOARD OKAYS SHARE HUL BOARD OKAYS SHARE
BUYBACK BUYBACK

The board of Hindustan Unilever (HUL) has The board of Hindustan Unilever (HUL) has
approved the buyback of shares announced last approved the buyback of shares announced last
week at a maximum of Rs 280 apiece . The week at a maximum of Rs 280 apiece . The
company outgo would not exceed Rs 630 crore. company outgo would not exceed Rs 630 crore.
HUL shares closed at Rs 252.50 HUL shares closed at Rs 252.50
on the Bombay Stock Exchange today on the Bombay Stock Exchange today
.According to HUL consolidated balance sheet .According to HUL consolidated balance sheet
dated March 31 ,cash and bank balances stood dated March 31 ,cash and bank balances stood
at Rs 2102.38 crore ,while networth was at Rs at Rs 2102.38 crore ,while networth was at Rs
2668.93 crore .2668.93 crore .

4. BUY-BACK OF SHARES BUY-BACK OF SHARES
(a) Meaning of buy-back (a) Meaning of buy-back
(b) Advantages of buy-back (b) Advantages of buy-back
(c) disadvantages of buy-back (c) disadvantages of buy-back
(d) sources of buy-back (d) sources of buy-back
(e) conditions which are required in buy- (e) conditions which are required in buy-
back back
(f) Accountings entries (f) Accountings entries

5. Meaning of Buy-BackMeaning of Buy-Back

The companies (Amendment) Act 1999 has introduced The companies (Amendment) Act 1999 has introduced
Section 77a in the companies Act, 1956 permitting Section 77a in the companies Act, 1956 permitting
companies to buy-back their own shares and other companies to buy-back their own shares and other
securities. Prior to the introduction of this Section, the securities. Prior to the introduction of this Section, the
buy-back of shares in India was totally prohibited. buy-back of shares in India was totally prohibited.
Buyback of share means repurchase of its own share by Buyback of share means repurchase of its own share by
a company .A company having substantial cash a company .A company having substantial cash
resources may like to buy its own share from the market resources may like to buy its own share from the market
when the prevailing market price of its share is much when the prevailing market price of its share is much
lower than its book value or what the company perceives lower than its book value or what the company perceives
to be its true value .This is called buy-back of shares. to be its true value .This is called buy-back of shares.

6. Advantages Of Buy-Back Of Advantages Of Buy-Back Of
Shares Shares

Companies having large amount of free Companies having large amount of free
reserves are free to use funds to acquire shares reserves are free to use funds to acquire shares
and other specified securities under the buy-and other specified securities under the buy-
back process.back process.

Buy-back of shares is helpful to a company to Buy-back of shares is helpful to a company to
reduce its share capital which is bloated reduce its share capital which is bloated
unnecessarily for the time being. unnecessarily for the time being.

Buy-back of shares results in lower capital Buy-back of shares results in lower capital
base , enhances post-buyback earning per base , enhances post-buyback earning per
share and appreciates the price-earning ratio . share and appreciates the price-earning ratio .

7. Disadvantages Of Buy-back Of Disadvantages Of Buy-back Of
Shares Shares

The buybacks imply under valuation of The buybacks imply under valuation of
companies stock .the companies plough back companies stock .the companies plough back
some of the outstanding shares thereby creating some of the outstanding shares thereby creating
a shortage of shares in the market .a shortage of shares in the market .

Companies go for announcing buyback when Companies go for announcing buyback when
they can’t find anything better to do with their they can’t find anything better to do with their
cash .cash .

Well timed buyback of share is a clever way for Well timed buyback of share is a clever way for
managers to invest cheaply in a company they managers to invest cheaply in a company they
know rather than expensively in a company they know rather than expensively in a company they
don’t know . don’t know .

8. SOURCES SOURCES
A Company can purchases its own shares out of A Company can purchases its own shares out of
its following sources :its following sources :
(a)(a)Free Reserves Free Reserves
(b)(b)Securities Premium AccountSecurities Premium Account
(c)(c)The proceeds of any shares or other specified The proceeds of any shares or other specified
securities securities
provided that no buyback of any kind of provided that no buyback of any kind of
shares or other specified securities shall be shares or other specified securities shall be
made out of the proceeds of an earlier issue of made out of the proceeds of an earlier issue of
the same kind of shares or same kind of other the same kind of shares or same kind of other
sspecified securities .sspecified securities .

9. CONDITIONS CONDITIONS

Shares for buyback must be fully paid up Shares for buyback must be fully paid up

Buy-back must be authorized by articles of Buy-back must be authorized by articles of
association of the company association of the company

Special Resolution Special Resolution

Limit on buyback of sharesLimit on buyback of shares

Debt-Equity Ratio Debt-Equity Ratio

To comply with regulation made by SEBITo comply with regulation made by SEBI

Time limit for buybackTime limit for buyback

Declaration of insolvency Declaration of insolvency

Restriction on further issue of same kind of Restriction on further issue of same kind of
shares shares

10. ACCOUNTING ENTRIES ACCOUNTING ENTRIES
1)FOR SALE OF INVESTMENT :1)FOR SALE OF INVESTMENT :
Bank A/c Dr. Bank A/c Dr.
Profit & Loss A/c Dr.Profit & Loss A/c Dr.
To investment A/c To investment A/c
To capital reserve A/c To capital reserve A/c

2) FOR ISSUE OF ANY SHARES OR OTHER SPECIFIED 2) FOR ISSUE OF ANY SHARES OR OTHER SPECIFIED
SECURITIES : SECURITIES :
Bank A/c Dr. Bank A/c Dr.
To pref. share capital A/cTo pref. share capital A/c
To securities premium A/c To securities premium A/c
3) FOR CANCELLATION OF SHARES BOUGHT BACK 3) FOR CANCELLATION OF SHARES BOUGHT BACK
Equity share capital A/c Dr.Equity share capital A/c Dr.
Free Reserves A/c Dr. Free Reserves A/c Dr.
To Shareholders A/c To Shareholders A/c

11. Further Accounting entries Further Accounting entries
4)FOR MAKING PAYMENTS TO EQUITY SHAREHOLDERS FOR 4)FOR MAKING PAYMENTS TO EQUITY SHAREHOLDERS FOR
SHARE BOUGHT BACK: SHARE BOUGHT BACK:
Equity shareholders A/c Dr.Equity shareholders A/c Dr.
To Bank A/c To Bank A/c
5) FOR TRANSFER OF FREE RESERVES TO CAPITAL 5) FOR TRANSFER OF FREE RESERVES TO CAPITAL
REDEMPTION RESERVE A/C TO MEET THE REQUIREMENT OF REDEMPTION RESERVE A/C TO MEET THE REQUIREMENT OF
LAW FOR BUYBACK OF SHARES LAW FOR BUYBACK OF SHARES
Free Reserves A/c Dr. Free Reserves A/c Dr.
To Capital Redemption Reserve A/cTo Capital Redemption Reserve A/c

12. BUYBACK OF SHARES UNDER THE BUYBACK OF SHARES UNDER THE
COMPANIES ACT,1956-AN INSIGHTCOMPANIES ACT,1956-AN INSIGHT

The provision regulating buy back of The provision regulating buy back of
shares are contained in Section 77A, shares are contained in Section 77A,
77AA and 77B of the Companies 77AA and 77B of the Companies
Act,1956. These were inserted by the Act,1956. These were inserted by the
Companies ( Amendment ) Act ,1999 Companies ( Amendment ) Act ,1999
.The Securities .The Securities
and Exchange Board of India (SEBI) and Exchange Board of India (SEBI)
framed the SEBI (Buy Back of Securities).framed the SEBI (Buy Back of Securities).

13. OBJECTIVES OF BUY BACK OBJECTIVES OF BUY BACK


To increase promoters holding To increase promoters holding

Increasing earning per share Increasing earning per share

Support share value Support share value

To thwart takeover bid To thwart takeover bid

To pay surplus cash not required by To pay surplus cash not required by
business business

14. REGISTER OF SECURITIES REGISTER OF SECURITIES
BOUGHT BACK BOUGHT BACK

The consideration paid for the securities ,The consideration paid for the securities ,

The date of cancellation of securities ,The date of cancellation of securities ,

The date of extinguishing & physically The date of extinguishing & physically
destroying of securities &destroying of securities &

Such other particulars as may be Such other particulars as may be
prescribed .prescribed .

15. ISSUE OF FURTHER ISSUE OF FURTHER
SHARES AFTER BUY SHARES AFTER BUY
BACKBACK
Every buy back shall be Every buy back shall be
completed within twelve months completed within twelve months
from the date of passing the from the date of passing the
special resolution or board special resolution or board
resolution as the case may be . resolution as the case may be .

16. BUY BACK OFFER BY MNCSBUY BACK OFFER BY MNCS
In the financial year 2001-2002, twenty MNCs made In the financial year 2001-2002, twenty MNCs made
buyback offers .Some of the well-known MNCS which buyback offers .Some of the well-known MNCS which
offered to buy back their shares were Philips India offered to buy back their shares were Philips India
Limited (Philips), Cadbury India Limited (Cadbury) Limited (Philips), Cadbury India Limited (Cadbury)
,Britannia Industries Ltd (Britannia) ,Carrier Aircon ,Britannia Industries Ltd (Britannia) ,Carrier Aircon
(Carrier) and otis Elevators (otis) . All these companies (Carrier) and otis Elevators (otis) . All these companies
made open offers for the non-promoters shareholding in made open offers for the non-promoters shareholding in
their Indian subsidiaries . To buy back shares ,Cadbury their Indian subsidiaries . To buy back shares ,Cadbury
paid Rs 9 billon, philips Rs 2 billion ,and carrier , otis and paid Rs 9 billon, philips Rs 2 billion ,and carrier , otis and
Reckitt Benkiser all paid over Rs 1 billion . Reckitt Benkiser all paid over Rs 1 billion .