Share Buyback To Benefit Only Large Cos
Corporates welcomed the working draft of the Companies Bill which was officially released on Tuesday terming it workable and practical. However, they felt that provisions relating to buy back of shares was likely to benefit only large companies with huge cash reserves.
Some provisions of the draft bill like the concept of group resource companies and book building method for price fixation of an issue will only bring existing practices within the purview of the Companies Act, they feel. Regarding the ceiling on inter-corporate deposits being raised, they said it would result in increased flexibility and ensure availability of funds for genuine projects.
Corporates also welcomed the move to bring government companies on a level playing field with private companies, saying it would increase their efficiency.
In Mumbai, R L Shenoy, director of pharma major E Merck, said, Multinationals which already have majority stake in Indian companies would not be interested in buy back of shares. The introduction of non-voting shares will benefit companies as the share capital can be increased while retaining control.
He said foreign institutional investors would be interested in such shares as they usually dont exercise their voting rights.
The company secretary of a leading Indian drug firm expressed concern at the measures for buyback of shares saying it could encourage insider trading and influence the markets.
A senior official in a multinational firm in Mumbai said that buy back of shares would not have the impact expected in certain quarters as buy back of any respectable companys shares would require substantial sums of money and creditors would demand repayment of their dues first.
He feels that the concept of non-voting shares is only a variation of preference shares.
In Delhi, SRF Ltd chairman Arun Bharat Ram welcomed the measures introduced in the Companies Bill. Asked if it would lead to a level playing field for domestic companies, he said this was a step in that direction.
According to T G Keswani, noted expert on corporate law and taxation, the buyback of shares is a welcome step, but it should be allowed with voting rights to ward off hostile take-overs.
Moreover companies should be given complete operational freedom with regard to inter-corporate deposits and investments and all ceilings should be removed. The shareholders of a company should decide how much to invest.
In Calcutta, Abhijit Sen, co-chairman and managing director of Nicco Corporation Ltd, said permission of buy-back of shares and other specified securities is a welcome move.
This policy which is prevalent all over the world has been long awaited in India, he said.
Gaurav Swarup, director of Paharpur Cooling Towers Ltd and president of Indian Chamber of Commerce said: This move has been long overdue.
He welcomed the simplification of the bill and clear demarcation between the powers of department of company affairs, Company Law Board, Securities and Exchange Board of India and High Courts. This will make administration a much easier process.
Political contributions have always been prevalent in the country, and now, under the new bill, this practice will gain transparency, he said.
Voicing a similar opinion, Sen said, this step will be merely formalising what was earlier an informal practice.
Regarding the authority to clear investments up to 60 per cent of the capital and free reserves of the company, or 100 per cent of the companys free reserves, Shekhar Chatterjee, vice-president, finance, BOC India Ltd, said: It is not something that is very investor friendly as now it would be easier for manufacturing companies to diverge from their core operations.
Moreover, approval of the share-holders would be sought only through a special resolution to exceed this threshold.
Most corporate houses opined that fixing inter-corporate loans and deposits to associate companies to 60 per cent from an earlier 30-30 break-up is merely a theoretical flexibility. Many companies which have exhausted their capacity to lend will not benefit largely from this provision.