Infosys Buyback: What A Retail Investor Needs To Know
Infosys will have to set aside Rs 1,950 crore to buy shares from retail investors.
Infosys Ltd.’s board approved to buy back shares worth up to Rs 13,000 crore at Rs 1,150 apiece. That represents 4.92 percent of its total outstanding equity. The buyback price implies a premium of 24.5 percent to Friday’s closing price.
Here’s all that retail investors need to know:
Retail Quota
The Securities and Exchange Board of India mandates companies to set aside 15 percent of the total buyback size for retail investors, or those holding shares worth up to Rs 2 lakh on the record date – the cut-off date to decide which shareholders are eligible. Which means, Infosys will have to set aside Rs 1,950 crore to buy shares from retail investors, subject to regulatory approvals for its repurchase plan.
What’s The Entitlement Ratio?
The entitlement ratio is the number of shares offered under a buyback to the total outstanding shares of the company. For retail investors, it’s the ratio of shares tendered by such investors to the total number of shares held by this category of shareholders.
The entitlement ratio can be calculated only on the basis of the share price on the record date and the total number of shares held by retail investors.
According to the company’s filings, 2.87 crore Infosys shares were with investors holding 200 shares or less as of March 31. If we assume a price of Rs 1,000 on the record date for Infosys, the value of the shares held by these investors will be Rs 2 lakh or less, qualifying them as retail investors.
Since Infosys will have to buy back Rs 1,950 crore worth of shares from retail investors, at the buyback price of Rs 1,150 apiece this works out to 1.69 crore shares. So, the ratio of the shares Infosys will buy back from retail investors to the total number of shares held by the category stands at 59 percent. And that’s the derived entitlement ratio.
Remember, that’s based on an assumption and the entitlement ratio changes with the share price and the total number of shares.
How Is It Different From Acceptance Ratio?
Acceptance ratio is the proportion of shares accepted to the total number of shares tendered in the buyback by investors, including promoters. Acceptance ratio is generally lower if a higher number of eligible investors tender shares. But it cannot be less than the entitlement ratio.
Recent buybacks of companies like Wipro Ltd., Bharti Infratel Ltd., Mphasis Ltd. and Tata Consultancy Services Ltd. saw an acceptance ratio of 100 percent – which means all the shares tendered were accepted. One of the reasons could be lower participation or many investors not opting for the share buyback.
“With many companies opting for buybacks due to the tax advantage and a near 100 percent acceptance ratio, the retail participation is increasing,” Nilesh Doshi, founder of Mumbai-based stock broking firm Prospero Finvest, told BloombergQuint. Prospero sees a high likelihood of a stronger retail participation in the Infosys buyback, “which may lower the acceptance ratio for this category”, said Doshi.
Risks Involved
- Shareholders do not approve the buyback scheme or changes are made to it.
- Higher participation by retail investors versus the assumed retail investor base.
- A fall in share price may lead to losses if shares unaccepted in the buyback are sold below cost.
(Updates an earlier version to correct the entitlement ratio)