Exactly 12 months after listing on the bourses, DLF Ltd — the country's largest real estate company — is planning to buy back its shares, in a bid to prop of their prices that have had a free fall in recent months.
A final decision to this effect will be taken at the next board meeting scheduled on July 10, the company said in a notice to the Bombay Stock Exchange, but gave no details.
Ramesh Sanka, DLF's chief financial officer, told the Hindustan Times that legally the company is allowed to buy back its own shares, so long as it maintains a minimum of 10 per cent of its equity as floating stock. That would mean the company can buy back up to 1.8 per cent of its equity, or 3.1 crore shares, which is worth about Rs 1,300 crore at current prices.
Any buyback will obviously mean a bigger cash outgo.
Sanka said DLF was planning the buyback as it believed its current stock price does not accurately reflect the strength of the company.
DLF shares, which listed at Rs 525 each in July last year, peaked to Rs 1,225 in January, but have since fallen sharply amid a sustained slide in the stock market that has hit realty stocks hard.
On Wednesday, DLF closed at Rs 424, down 19 per cent from the offer price.
DLF is not the first company to plan buyback. Reliance Infrastructure, Patni Computers, Great Offshore, NDTV, Deccan Chronicle Holdings Ltd have already taken this route.
Sanka said the company had enough cash to fund the proposed buyback, but gave no details about the price it would offer.
Although he ruled out any roadblock to the plan, an investment banker familiar with such issues said DLF would still need to get an exemption from the takeover panel under the Securities and Exchange Board of India.
Under the takeover code, promoters cannot increase their holding beyond 75 per cent in any company. In this case promoters are not buying the shares directly, but the company's buy back would indirectly result into hiking promoters’ holdings.