Budget impact: KPR Mill withdraws share buyback proposal, stock dips 6%

The company said it is not permitted to meet the buyback obligations beyond the amount approved by the board of directors and the same can also be effected only with the borrowed funds.

Shares of KPR Mill dipped up to 6 per cent to Rs 570 in early morning deals on the BSE on Friday after the textile company withdrew buyback proposal due to the tax proposed on buyback obligations in the Finance Bill 2019.

The company had proposed (on April 18, 2019) and approved (on April 30, 2019) buyback of 3.75 million equity shares, representing 5.17 per cent of the total share capital, at a price of Rs 702 per share for a consideration not exceeding Rs 263.31 crore.

Subsequently, between April 18 and June 17, the stock of KPR Mill outperformed the market by surging 11 per cent. It turned ex-date of share buyback on June 18. 

"We have today filed with Sebi our communication conveying that the increase in the amount of buyback obligation due to the tax proposal in the Finance Bill 2019 was neither contemplated nor prevailing at the time of the consideration and the approvals of the board and shareholders," the company said in a press release.

"The company is not permitted to meet the buyback obligations beyond the amount approved by the board of directors and shareholders and the same can also be effected only with the borrowed funds, which is prohibited by law, it said.

With a view to discourage the practice of avoiding dividend distribution tax (DDT) through buyback of shares by listed companies, Union Finance Minister Nirmala Sitharaman last week proposed an additional tax of 20 per cent in case of buyback of shares by listed companies.

Exemption enjoyed by the shareholder of a listed company on income arising on account of buyback of shares has been withdrawn with effect from July 5, 2019.

At 09:37 am, KPR Mill was trading 4 per cent lower at Rs 585 on the BSE, as compared to a marginal 0.01 per cent rise in the benchmark index. A combined 76,672 shares have changed hands on the counter on the BSE and NSE so far.