Shares of textile manufacturer KPR Mill Ltd declined over 6% in intraday trade on Friday, i.e. 12 July, after the company decided to withdraw its proposed share buyback plan due to the new taxes proposed on such transactions in the Union Budget 2019.
Back in June, KPR Mill had proposed to buy back up to 3.7 million shares of the company at a price of Rs 702 apiece for an aggregate amount of Rs 263.3 crore, with 17 June fixed as the record date for the buyback. However, the Union Budget 2019, presented by finance minister Nirmala Sitharaman, proposed to levy a buyback tax of 20% on all listed companies. This was done with a view to discourage the practice of avoiding dividend distribution tax (DDT) by buying back shares.
“We have today (11 July) filed with Sebi (Securities and Exchange Board of India) our communication conveying that the increase in the amount of buyback obligation due to the tax proposal in the Finance Bill 2019 was neither contemplated nor prevailing at the time of the consideration and the approvals of the board and shareholders,” the company told exchanges.
The company added: “We are not permitted to meet the buyback obligations beyond the amount approved by the Board of Directors and Shareholders of the Company and the same can also be effected only with the borrowed funds, which is prohibited by law. In the above circumstance, we are unable to file the 'letter of offer ' and go forward with the proposal, which has been intimated to Sebi.”
However, J.N. Gupta, former ED at Sebi, told CNBC-TV18 that KPR Mill will have to approach the capital market regulator for an exemption. “Once letter of offer is filed and public announcement is made, buyback can’t be withdrawn. Company can’t withdraw buyback once record date has passed,” he said.
At 2:32 pm, shares of KPR Mill were trading at Rs 591.50, down 2.9%, on BSE after hitting an intra-day low of Rs 571.30.
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