The board of Cairn India Ltd will meet on Tuesday to consider a proposal to buy back shares, a move which will help promoter Vedanta Group increase its stake in the company without putting in any money.
Cairn, which is sitting on a cash pile of about $3 billion (about Rs. 18,813 crore), in a filing to the stock exchanges said, “A meeting of the board of directors of the company will be held on November 26, 2013, to consider the proposal for buy back of equity shares of the company.”
Share buy-back is the process where a company repurchases outstanding shares in order to reduce the number of shares on the market.
Companies, as a rule, buy back shares either to increase the value of shares still available (reducing supply), or to eliminate any threats by shareholders who may be looking for a controlling stake.
As per the Securities and Exchange Board of India (Sebi) rules, Cairn will buy a pre-decided quantity of shares from the market at a rate which is likely to be higher than current trading price. Such shares will be held as treasury stock and eventually extinguished. This will lead to its promoter Vedanta Group’s stake in the company going up without putting in any money.
Non-resident Indian billionaire Anil Agarwal-led Vedanta Group holds 58.76% stake in Cairn India.
UK’s Cairn Energy, which had sold majority stake in Cairn India to Vedanta Group, still holds 10.27% shares and may look at the share buy-back programme to exit.