Steam billows from the cooling towers. (Photographer: Carla Gottgens/Bloomberg)

BQ Edge | Why IGL’s Stock Has More Steam Left And Can The HEG Buyback Benefit You?

BQEdge is specially curated for BQBlue subscribers. Every day this note will offer special equity market and stock-specific insights and flag select emerging trends in the tricky-to-trade derivatives market.

On Today’s Edition:

  • Why shares of IGL seem ready to fire on all cylinders
  • Can the HEG buyback benefit you?

Watch | IGL: Ready To Fire On All Cylinders?

Can The HEG Buyback Benefit You?

Some of you may be wondering how to make the most of the buyback announced by HEG Ltd. Well, BloombergQuint did some quick calculations to understand who could benefit from the buyback. Please be warned - these are approximations.

The record date for HEG’s buyback is Feb. 9, a Saturday, so investors who aren't already HEG shareholders need to buy HEG shares by Feb 6 (today) to be eligible to participate in the buyback. Why Feb. 6? Because it would take two days for the shares to be deposited in their demat accounts, such that they are bonafide shareholders on the 9th.

Now, HEG has proposed to purchase up to 13.6 lakh shares via this buyback, that's 3.41 percent of the total paid up capital of the company. The amount spent on the buyback shall not exceed Rs 750 crore at a buyback price of Rs 5,500 per share, according to the company's statement. The buyback will be done via the tender route i.e.: shareholders need to tender shares that will be purchased in proportion to the overall buyback plan.

Buyback Method: Tender Offer

  • Buyback price: Rs 5,500 per share
  • Buyback record date: Feb. 9, 2019
  • Last date to purchase shares so as to participate in buyback: Feb. 6, 2019
  • Buyback size (shares) = up to 13,63,636 shares (3.41 percent of equity)
  • Buyback size = up to Rs 750 crore
  • Retail portion of buyback = up to 2,04,500 shares (15 percent of the buyback)

As per SEBI norms, 15 percent of the buyback is reserved for 'retail investors' ie. those that own shares worth less than Rs 2 lakh as per the closing price of the share on the buyback date.

At the current market price of Rs 2,500 per share, ownership of 80 or less HEG shares would qualify an investor as ' retail'.

Of a total up to 13,63,363 shares to be bought back, about 2,04,500 will be from retail investors.

As per the buyback document, 64,964 individual shareholders own 50,98,325 shares.

Assuming half of them, that's shareholders owning a total 25,49,163 shares, qualify as retail investors the entitlement ratio works out to approximately 8 percent, as per BloombergQuint calculations.

An entitlement ratio is the amount of shares that will definitely bought back by the company. That means if an investor buys 8 shares and tenders them in the buyback, one share might be accepted.

This number could vary if the number of retail shareholders is much higher than estimated. Of course, the odds improve if fewer individual shareholders qualify as retail.

Also, given the huge gap between current market price and the buyback price there's likely to be a big rush to tender in the buyback.