The total value of buyback offers jumped over 170 per cent year-on-year in 2022 as public sector enterprises and IT service firms used their surplus cash to reward shareholders or to shore up their dwindling stock prices.

Data compiled from Prime Database show that a total of 58 buybacks amounting to ₹38,735 crore were offered in 2022 as against 42 offers worth ₹14,341 crore in 2021. 

Buyback refers to the company buying back its shares from shareholders, typically at a price higher than the current market price. Companies can choose to buyback through the tender (buy directly from shareholders) or open market (buy via stock exchanges) routes. 

As per the Prime Database figures, there were 23 buybacks worth ₹15,195 crore on offer under open market route, of which only up to ₹4,230 crore were bought back by the companies till date. On the other hand, of the 35 buyback offers worth ₹23,540 crore under the tender route, ₹23,153 crore or 98 per cent of the buybacks were bought back. 

The big difference

Pranav Haldea, Managing Director, Prime Database, said companies doing buyback under the stock exchange route quote the maximum price for the buyback but it may not be the price at which they will acquire the shares from the open market. “Hence, you see a big difference between total value of buybacks on offer and buybacks acquired under the open market route.” 

Whereas in the tender route, Pranav said, the company will announce the buyback price (usually premium to the current market price) and hence the acceptance rate is higher. In recent years, the tender route has become the preferred buyback route for companies and investors.

Tender route

In a recent discussion paper, the Securities and Exchange Board of India proposed phasing out buybacks done through the open market route. 

Nilesh Sharma, Executive Director at Samco Securities, said buybacks under tender route will be beneficial to retail shareholders since it has special quota allocated to them.  

Sharma added that although companies announce premium buyback prices under the stock exchange, the shares are bought at the market price mostly below the announced price.

For instance, on December 13, Paytm announced a ₹850-crore buyback programme at ₹810 apiece through the stock exchange route. The buyback price was 50 per cent higher than that day’s closing price of ₹539.4 apiece. However, Paytm bought back 3.95-lakh shares at ₹498.74 apiece and 2.6-lakh shares at ₹513.34 per share over the last two days.

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