Page 206 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 8: Methods of Redemption–I

Investor Grievances Notes
Analysts felt that the buyback option may be misused by MNCs to increase their equity
stakes in their Indian ventures, escape public scrutiny and accountability and prevent
them from the Indian regulatory environment.
Moreover, the option to convert their Indian ventures into wholly owned subsidiaries
and delist their shares from the stock markets provided MNCs with complete control over
their Indian ventures, allowed them to repatriate profits and make more independent
investment decisions.

A section of investors felt that government regulations must have provided them with a
choice.
However, minority shareholders claimed that they had no option and were forced to sell
their shares once MNCs bought back shares from the majority shareholders...
Buy or Not to Buyback?
The dilemma that faced small investors in India was whether the buyback option, along
with the SEBI guidelines, actually protected their interests and offered them an exit option
at a fair price or was it a tool that provided them with no options allowing large MNCs to
gain complete control of their subsidiaries.

Investors felt that the regulations framed by SEBI did not have provisions for preventing
good stocks from delisting. Moreover, the buyback price, which was determined using
the parameters specified in the SEBI Takeover Code, did not consider the future potential
of the stock.
They felt that SEBI should have looked at various financial parameters such as future cash
flows, value of brands and the value of fixed assets to determine a pricing formula for
open offers which ensured that investors who had been holding the stock for several years
received a fair price for their investment.

Source: http://www.icmrindia.org/casestudies/catalogue/Finance/Buyback%20of%20Shares%20by%20MNCs%20in%20
India%20-%20Finance.htm

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