Unease over Reliance Retail buyback offer
The proposal put forth by Reliance Industries (RIL) to buy back shares of Reliance Retail (RRL) is considered legal. However, it has faced criticism from some stakeholders who believe the company should have avoided a “forced buyout.”
According to Shriram Subramanian, the founder and MD of InGovern Research Services, the buyback can be seen as a forced buyout of minority shareholders of RRL by Reliance Retail Ventures (RRVL). This perspective suggests that minority shareholders may feel disappointed by the buyback offer, as they perceive the price to be much lower than the current trading prices in the grey market.
It’s important to note that this analysis represents the viewpoint of Shriram Subramanian and does not necessarily reflect the opinions of all stakeholders or industry experts. Stakeholder sentiment can vary, and different perspectives exist regarding the fairness and implications of a buyback.
In the context of corporate actions like buybacks, companies need to balance the interests of various stakeholders and ensure transparency and fairness in the process. Regulatory frameworks and corporate governance principles often provide guidelines to protect the rights of minority shareholders and ensure that their interests are adequately considered.
Ultimately, the success and acceptance of a buyback proposal depend on multiple factors, including the terms of the offer, the valuation methodology, the prevailing market conditions, and the communication and engagement with shareholders. It is essential for companies to address any concerns and provide clear rationale and justifications for their decisions to maintain trust and confidence among stakeholders.
Reliance Industries (RIL) has proposed a buyback of shares from shareholders of Reliance Retail (RRL). However, this proposal has faced criticism from stakeholders who believe it is a “forced buyout” and the buyback price is significantly lower than the current grey market price.
The grey market price of RRL shares is reportedly around Rs 2,700, while RIL has proposed a buyback price of Rs 1,362 per share. This price disparity has led to disappointment among minority shareholders who feel that the offer undervalues their holdings.
To proceed with the buyback, RIL will need approvals from shareholders through a special resolution and the National Company Law Tribunal. The proposed buyback price was determined by two independent valuers, E&Y and BDO Valuation Advisory, who valued the shares at Rs 884.03 and Rs 849.08 per share, respectively. The buyback price offered by RIL represents a premium of Rs 477.97 and Rs 512.92 per share, as determined by the valuers.
Reliance Retail Ventures (RRVL), in which RIL holds an 85.06% stake, currently owns 99.93% of RRL. The remaining 7.86 million shares are held by minority shareholders who would be affected by the buyback.
It is important to note that this analysis reflects the concerns expressed by some stakeholders and may not encompass the perspectives of all shareholders or industry experts. Shareholder sentiment can vary, and different viewpoints exist regarding the fairness and adequacy of the buyback offer.
In corporate governance, companies must consider the interests of all stakeholders and ensure transparency and fairness in their actions. Companies typically follow regulatory guidelines and corporate governance principles to safeguard the rights of minority shareholders and ensure equitable treatment.
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As the buyback proposal progresses, it will be essential for RIL to address the concerns of minority shareholders and provide clear justifications for the proposed buyback price. Open communication and stakeholder engagement will help maintain trust and confidence in the process.
Ultimately, the success of the buyback proposal will depend on factors such as shareholder approvals, regulatory requirements, market conditions, and the company’s ability to address stakeholder concerns effectively.
The capital reduction exercise proposed by Reliance Industries (RIL), where shareholders will receive cash in exchange for their shares, is expected to proceed smoothly. According to Shriram Subramanian, founder and MD of InGovern Research Services, this approach is rare among large corporates. However, it has been observed in many small firms during delisting processes to enable promoters to hold 100% ownership.
Shareholders who acquired shares from the grey market or received them as stock options may not have any alternative but to accept the offer. In the unlisted space, these shares were reportedly trading at a range of Rs 2,500-2,700. Once the buyback offer is concluded, RIL will effectively eliminate those shares.
It’s worth noting that the success of the capital reduction exercise and the acceptance of the offer will depend on the terms and conditions put forth by RIL, as well as the reactions and decisions made by the shareholders. While some shareholders may be satisfied with the offer, others who acquired higher-priced shares may feel disappointed with the proposed buyback price.
Shareholders who acquired shares through the grey market or as stock options should carefully evaluate their options and consider the potential gains or losses associated with accepting the buyback offer. Understanding the implications and consulting with financial advisors or experts may be beneficial in making an informed decision.
RIL’s intention to extinguish the shares following the completion of the offer means that those shares will no longer exist, potentially reducing the company’s outstanding share capital. This can have implications for the ownership structure and control of the company.
RIL should ensure transparency in its communication as the capital reduction exercise progresses and provide adequate information to shareholders regarding the rationale behind the buyback price and its impact on their holdings. By addressing shareholder concerns and maintaining open dialogue, the company can foster trust and confidence among its stakeholders.
Ultimately, accepting or rejecting the buyback offer will depend on the individual decisions made by shareholders, considering their personal circumstances and assessment of the offer’s fairness.
According to MS Sahoo, a distinguished professor at the National Law University, Delhi, and former chairperson of the Insolvency and Bankruptcy Board of India, the proposal by Reliance Industries (RIL) to buy back shares or reduce capital is a normal business strategy. He states that the law provides a well-defined process for such actions, with checks and balances in place to ensure fair treatment for shareholders.
In the case of Reliance Retail, which is an unlisted company, the valuation norms under company law apply rather than the norms set by the Securities and Exchange Board of India (SEBI) for listed companies. This means that the valuation of shares and the offer price to exiting shareholders will follow the guidelines specified under company law.
RIL will need shareholders’ approval through a special resolution to proceed with the buyback or capital reduction. Once shareholders approve the proposal, it will require subsequent approval from the National Company Law Tribunal (NCLT). These steps ensure that the process is conducted transparently and that shareholders’ interests are safeguarded.
Sahoo emphasizes that the legal framework surrounding buybacks and capital reduction is designed to prevent any unfair treatment of shareholders. The process follows specific guidelines and regulations to ensure that shareholders receive appropriate compensation for their shares and that the company adheres to the required procedures.
It’s important to note that while Sahoo provides insights into the legal aspects and safeguards in place, individual shareholders should carefully evaluate the proposal and consider their personal circumstances and the fairness of the offer before making a decision.
Consulting with financial advisors or legal experts can also provide valuable guidance in understanding the buyback or capital reduction implications.According to MS Sahoo, a distinguished professor at the National Law University, Delhi, it is unlikely that retail shareholders will object to the buyback move by Reliance Retail.
He notes that Reliance Retail is an unlisted firm with 99.9% of shares held by promoters, while non-promoter shares are traded in the grey market with limited transparency and liquidity. Given these circumstances, it is likely that non-promoter shareholders would resist the move, especially when the proposed exit price is within the minimum required by law.
However, Sahoo also points out that a buyback can reduce the buffer available to creditors. In cases where a company has outstanding debt, a buyback is typically only allowed if the creditors agree or their interests are adequately secured. This is to ensure that the company’s financial obligations are not compromised and that creditors’ interests are protected.
The statement suggests that the buyback move by Reliance Retail may not encounter significant opposition from retail shareholders. However, it is essential to consider that individual shareholders may have varying perspectives and considerations when evaluating the offer. Factors such as the financial implications, valuation of their shares, and personal investment goals may influence their decisions.
It is advisable for shareholders to carefully review the terms and conditions of the buyback proposal and seek independent advice if necessary. Understanding the potential impact on their investments and considering the long-term implications is crucial in making an informed decision.
