Shares of PC Jeweller Ltd. fell as much as 30 percent, the most in over two months, after it withdrew a proposal to buy back shares worth Rs 424 crore.
The board of directors decided to withdraw the offer with immediate effect after the company failed to receive the requisite no-objection certificate from its bankers, the company said in its filing to the stock exchanges on Friday.
The company had to take bankers’ permission as part of the standard loan covenants procedure, PC Jeweller said in another filing to the exchanges on Saturday. Bankers recommended that the company should continue to focus on growth and give priority to further reduce its interest expense to the maximum extent possible, it said.
It’s surprising that the company announced a buyback without even taking a no-objection certificate from bankers, Amit Mantri, managing partner of 2Point2 Capital, told BloombergQuint. “This is again an example of poor disclosure standards and corporate governance followed by the company.”
PC Jeweller didn’t respond to BloombergQuint’s queries on the buyback withdrawal.
Its shares plunged in the last six months due to investor concerns over promoters paring stake and its business ties with Vakrangee Ltd., which was facing a Securities and Exchange Board of India probe for alleged price and volume manipulation. PC Jeweller in April clarified that PC Gupta, one of its promoters, had gifted some of his shares to family members in an off-market transaction. That didn’t ease investor anxiety as the stock continued to fall.
On May 10, PC Jeweller approved a buyback of up to 1.21 crore shares, or 3.07 percent stake, at Rs 350 apiece. That was at a premium of 67.5 percent to the prevailing stock price.
The company said the promoters wouldn’t participate, and it had sufficient cash balance. PC Jeweller, according to its filings, had cash and cash equivalents of Rs 1,575 crore as on March 31 on a consolidated basis. Even that didn’t stem the stock slide as its shares have fallen over 40 percent since then.
There have also been concerns about the company’s business ties with Vakrangee, which was under SEBI’s scanner. Vakrangee also held a stake in PC Jeweller.
Dinesh Nandwana, managing director and chief executive officer of Vakrangee, in an interview with BloombergQuint, had denied stock price manipulation, saying that the market regulator didn’t find any wrongdoing. Vakrangee had said it invested in PC Jeweller based on its long-term business potentials and sold its holding following a change in the treasury policy.
A month ago, Vakrangee too cancelled its Rs 1,250 crore buyback and dividend plan, saying it plans to use the cash for capital expenditures and marketing expenses.
Shareholders view the buyback announcements as evidence that governance concerns are exaggerated and end up loading up on the stock. Companies cancel the buybacks giving frivolous reasons when the buyback fails to lift the stock price. In the end, shareholders have been taken for a ride.Amit Mantri, Managing Partner, 2Point2 Capital