Parekh moots easier buyback for core cos
The Deepak Parekh committee has recommended that buyback restrictions should be liberalised for infra cos.
By Radhika Bhalla, TNN |
NEW DELHI: The Deepak Parekh committee on infrastructure financing has called for liberalisation of rules related to buyback of shares to make it easier to finance purchase of supplies and equipment for projects.
For instance, a part of the equity in a special purpose vehicle (SPV) set up to execute an infrastructure project may be offloaded to vendors and suppliers at the initial stage, as a consideration for items received from them.
Thereafter, when the project is operational, the promoter of the SPV may have enough cash to buy back the shares initially allotted. As of now, infrastructure companies face restrictions at the time of buying back share capital.
There are stipulations on the total amount of outflow that can happen on account of the buyback as well as on the number of shares that can be bought back. The committee, which submitted its final report to the finance ministry recently, has recommended that in case of infrastructure companies, these buyback restrictions should be liberalised.
According to PwC associate director Vishwas Udgirkar, “While there is a need to liberalise buyback regulations, a certain amount of equity is required to be allotted to vendors and suppliers as part of the concession agreement to ensure their commitment to the project. Thus, there should be a minimum amount of equity that such suppliers should hold in a particular SPV established to execute a project.”
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The developer usually buys back the equity from the suppliers once the project becomes operational and cash starts flowing in, to regain control over the company or SPV formed for the project. “A liberalisation of regulations will increase liquidity as a developer would be able to participate in a larger number of projects if it can offload equity to suppliers initially and buy back at a later date,” Gammon India’s Umesh Gupta said.
However, industry players also pointed out that currently the buyback mechanism is not used too often. “There are not too many examples of situations where such a buyback mechanism is used to indirectly finance supplies in infrastructure projects. If at a later stage this becomes a regular practice, a liberalisation of regulations may be called for,” Simplex Infrastructure’s Amitabh Mundhra said.
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