SEBI Cites High Debt-Equity Ratio As Reason For Not Approving L&T’s Rs 9,000-Crore Share Buyback Plan

Securities and Exchange Board of India (SEBI) has denied approval for Larsen & Toubro’s (L&T) Rs 9,000-crore share buyback offer, reports Mint.

"The ratio of the aggregate of secured and unsecured debts owed by the company after buy back (assuming full acceptance) would be more than twice the paid-up capital and free reserves of the company based on consolidated financial statements," said the securities regulator in a letter to L&T.

Companies Act, 2013, stipulates that the debt-equity ratio of a firm should not exceed the net worth of the company (paid-up equity capital and free reserve) after the buyback is completed. However, in L&T’s case, the debt would have been more than twice the free reserves and capital on the consolidated basis.

On the other hand, on a standalone basis, L&T’s debt-equity ratio would not exceed norms. Also, SEBI did not specify if it rejected the buyback on a consolidated or standalone basis.

The company had proposed to buy back up to 6.1 crore shares from shareholders at a price of Rs 1,475 per equity share.

IL&FS Overhang

It has been reported that SEBI had applied caution and delayed the approval of L&T’s buyback in the aftermath of the IL&FS crisis.

The non-banking financial company (NBFC), which lent heavily to big infrastructure projects, defaulted on its loan repayments in September 2018. This default triggered a market-wide liquidity crisis in the Indian financial system.

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