NHPC buyback bitter for small investors

Despite 100% acceptance ratio, low buyback price queers pitch for small investors, arbitrageurs

The low buyback price announced by NHPC has queered the pitch for investors seeking an exit or looking for a trading opportunity from the company’s Rs 2,400-crore share buyback programme.

Though a recent change of norms would ensure a 100 per cent acceptance ratio for small investors, analysts believe this isn’t enough incentive for them to tender shares. NHPC has fixed a price of Rs 19.25 for its buyback programme, the cut-off date for which is Friday.

On Tuesday, NHPC shares closed at Rs 18.8 apiece, a tad below the buyback price.

State-owned NHPC is taking the ‘tender offer’ buyback route so that the government, which owns 86.36 per cent stake in the company, is able to sell its shares to raise capital for meeting its Rs 40,000-crore disinvestment target for this financial year.

Companies can carry out share buybacks either through the tender route or through the open market route, which doesn’t allow promoters to participate in the buyback.

Last year, the Securities and Exchange Board of India (Sebi) had tweaked tender route buyback norms to provide 15 per cent reservations for small investors (holdings less than Rs 2 lakh). It had also reduced the buyback timeline from a month to just 10 days.

NHPC is buying back 1.23 billion shares, 15 per cent of which would be reserved of small investors, according to Sebi norms. According to the shareholding data for the quarter ended September 2013, the company has only a million individual shareholders.

Experts said a higher buyback price would have created opportunities for retail investors and provided a good exit to small investors. “There isn’t much difference between the market price and the buyback price. An investor looking for an exit is better off selling in the open market,” said Arun Kejriwal, director, Kejriwal Research and Investment Services.

Analysts are also critical of the company’s decision to go for buyback at a time when it would need capital for its projects. “A share buyback is an irrational move for a company such as NHPC. It is not a cash-surplus company; it has debt on its books. It has huge capex plans for setting up hydro power plants,” said S P Tulsian, an independent analyst. “The company is exhausting cash on buyback and is raising debt, which would only raise its interest costs.”

Kejriwal said, “The buyback is forcing the company to forego the money it would need for projects. The one-year cooling-off period after a share buyback will strangle the company from raising equity.”

Through an initial public offering (IPO) in 2009, NHPC had raised equity capital from the public at Rs 36 a share. Analysts said original IPO investors who continued to hold shares in the company might feel short-changed, as NHPC was buying back shares at about half the price at which it sold during the 2009 IPO.