Disinvestment: After KIOCL, NTPC readies to announce share buyback

• NTPC had sought an exemption from a rule which bars a company from announcing a share buyback programme if a scheme of amalgamation is pending

• The board of NTPC Limited had approved the merger of two wholly-owned subsidiaries of NTPC with itself in 2019

New Delhi: Days after KIOCL Limited announced a share buyback, state-run Maharatna company NTPC Limited looks set to follow suit, with the company reaching out to the Securities and Exchange Board of India (SEBI) for seeking an exemption in the matter. NTPC had approached SEBI on October 15 to seek an exemption from a rule under the Buyback Regulations, 2018, which bars a company from announcing a share buyback programme if a scheme of amalgamation is pending.

"NTPC had filed an Application dated October 15, 2020("Application") with Securities and Exchange Board of India ("SEBI") seeking  exemption/relaxation  from  the  strict  enforcement  of  the  requirement  contained under Regulation 24(ii) of the SEBI(Buy–back of Securities) Regulations, 2018 ("Buy–back Regulations 2018").  The aforesaid Application has been necessitated on account of a Scheme of Amalgamation providing for the merger of NTPC's wholly owned subsidiaries with itself, which is brought out in the subsequent paragraphs of this Order," an official order released by SEBI said.

NTPC share buyback: Amalgamation of 2 subsidiaries

The board of NTPC Limited had approved the merger of two wholly-owned subsidiaries of NTPC — Nabinagar Power Generating Company and Kanti Bijlee Utpadan Nigam — with itself in 2019. In its application to SEBI, NTPC has argued that there will be no new issuance of equity shares or change in the shareholding pattern of the company after the amalgamation. "Considering that there is no new issuance of equity shares or change in the shareholding pattern of the Company consequent to the Scheme of Amalgamation, the requirement of Regulation 24(ii) of the Buy–back  Regulations,  2018  can be  viewed  as a procedural  requirement  in  the present circumstances," NTPC said.

SEBI grants exemption to NTPC

Passing an order on the matter, SEBI whole-time member G Mahalingam said, "I find that the requirement of Regulation 24(ii) of the Buy–back Regulations 2018 can be viewed as a procedural requirement having regard to the facts of the present Application." With SEBI granting an exemption to NTPC Limited, decks have now been cleared for the company to announce a share buyback programme.

ALSO Read: KIOCL comes to govt's aid, announces share buyback; more PSUs to follow

The backdrop

The news comes just days after KIOCL announced a share buyback on October 21. The government is believed to have reached out to Coal India Ltd, NTPC Ltd, NMDC Ltd, MOIL Ltd, and Engineers India Ltd (EIL) for share buybacks this year. The government is the largest shareholder in all these companies and is looking to sell off its equity for cash in return. The Department of Investment and Public Asset Management (DIPAM) has managed to raise just about 3 percent of its FY21 target of Rs 2.1 lakh crore so far. With tax revenues hitting a new low in the wake of the COVID-19 pandemic, the fiscal gap is likely to rise to more than double the target of 3.5 percent of the Gross Domestic Product (GDP). DIPAM Secretary Tuhin Kanta Pandey had said in an interview last week that the Centre is encouraging PSUs to announce share buybacks if they have extra cash available after meeting their capex requirements.

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