In a year of listing, Paytm, the FinTech revolutionary is ready to buy-back its shares from the open market.

On November 18, 2021, the company was listed under an IPO at the issue price of INR 2150/- per share. The glorious oversubscription by 1.89 times could not pause the freefall of the share price post its listing.

December 13, 2022, marked the announcement of the unanimous approval of a buy-back worth INR 850 crore by the company’s Board of Directors. The share price slipped about 10% on announcement day but has been trading at approx. INR 532/- per share.

Paytm announced the buy-back through open market purchases from the Stock Exchanges, using the order matching mechanism except the “all or nothing” order matching mechanism, instead of the tender method whereby the shareholders would have been allowed to surrender shares at a fixed price.

This, allows the company to repurchase the shares at the market price prevailing up to the capped price of INR 810/- per share, which is at a premium of 50.13% to the market price as of the announcement date.

Paytm valued at $16 billion in private fundraising in 2019, currently has a market cap of about $4.2 billion.

The company plans to utilise 50% of the maximum buy-back size, approximately INR 425 crore, allowing a minimum of 5,246,913 equity shares to be repurchased by Paytm.

The Founder and Executive Director of the company are not participating in the buy-back which makes the company’s shareholding notable. The pre-buyback shareholding pattern reported as of December 9, 2022, was as below, confirming no identifiable promoter and promoter group or persons in control.

Sr. No.Shareholder% of shareholding
 Foreign Investors72.85
 Domestic Investors1.82
 Indian retail investors25.33
 Total100


Industry experts fear that the investment plans have been affected, and the company intends the buy-back to avoid further erosion in stock value. However, brokerage firms believe that the cash outlay for the buy-back is not a significant amount ($127 M) as against that recorded ($1.1 B) and would not hamper the company’s cash position in the long run.

THE REGULATIONS IMPACT

As required under SEBI LODR Amendment, only dematerialised equity shares shall be accepted under buy-back by the company.

If the company fails to complete the buy-back for the amount equal to the minimum buy-back size, the amount held in the Escrow Account, up to a maximum of 2.5% of the maximum buy-back size, is liable to be forfeited and deposited in IPEF of SEBI or as directed by SEBI.

SEBI, at a Board Meeting on December 20, 2022 decided, that the buy-back through the open market method would be phased out latest by April 2025, owing to the practical difficulties identified. Further, the following changes to SEBI (Buy-back of Securities) Regulations, 2018 were proposed –

  1. Reduction in completion timeline of buy-back by 18 days, removing the requirement of filing a draft letter of offer with SEBI, and also a reduction in the tendering period and for payment of consideration
  2. Increase in utilisation of the amount earmarked for buy-back through the stock exchange route from 50% to 75%
  3. Allow upward revision of buy-back price until one working day before the record date
  4. Mandatory disclosure of relevant information and documents on websites of stock exchanges, merchant bankers, and the company
  5. Creation of a separate window for undertaking buy-back for open market and tender routes

BUY-BACK SO SOON?

Buy-back is a tax-effective method of returning value to the shareholders. It is also an alternative mode of capital reduction without NCLT approval. With the reduction in issued shares, the earnings per share is invariably improved.

Other potential benefits include –

  1. exit opportunity to shareholders when shares are undervalued or thinly traded;
  2. enhance consolidation of stake in the company;
  3. prevent unwelcome takeover bids;
  4. return surplus cash to shareholders;
  5. achieve optimum capital structure;
  6. support share price during periods of sluggish market conditions;
  7. serve the equity more efficiently.

With the eyes fixated on the revised buy-back regime, Paytm’s Board strives to keep up the improved performance and maintain the equity value in the long run.

This is only for informational purposes. Nothing contained herein is, purports to be, or is intended as legal advice and you should seek legal advice before you act on any information or view expressed herein. Endeavoured to accurately reflect the subject matter of this alert, without any representation or warranty, express or implied, in any manner whatsoever in connection with the contents of this. This isn’t an attempt to solicit business in any manner.

Sources:

  1. https://www.sebi.gov.in/sebi_data/commondocs/dec-2022/One_97_PA_p.PDF
  2. https://tinyurl.com/stemkb77
  3. https://tinyurl.com/3tdb32zh
  4. https://tinyurl.com/3damtjtd
  5. https://tinyurl.com/4s5b3mdx

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