Buyback Price Calculation & Maximum Shares for Retail Category

Published on Thursday, February 24, 2022 by Chittorgarh.com Team

15% shares in a proposed buyback through the Tender Offer route are reserved for small shareholders. This is done for the benefit of a large number of public shareholders. The acceptance ratio (AR) is higher in this reserved category which results in higher profits. You can refer to the Buyback Calculator provided on each Tender Offer Buyback page that helps assess Profit and loss for a range of Acceptance Ratio.

A small shareholder for the buyback is a shareholder who holds the equity shares with a market value of Rs 2,00,000 and lesser as on Record Date.

The maximum number of shares that qualify in Rs 2,00,000 is derived based on the closing price of the security of the stock exchange that has the highest trading volume of that particular stock as on Record Date.

SEBI Definition as per document SEBI Buyback Regulations:

'small shareholder' means a shareholder of a company, who holds shares or other specified securities whose market value, on the basis of the closing price of shares or other specified securities, on the recognized stock exchange in which highest trading volume in respect of such securities, as on record date is not more than two lakh rupee.

Let's take the example of TCS's buyback in February 2022.

Eligibility Criteria for Small Investors in TCS Buyback 2022

TCS shares closing price on 23 February 2022 (record date) at NSE was Rs 3,563.80 and at BSE was Rs 3565.30. Since the trading volume of TCS is higher on NSE for that day, the number of Shares as on Record Date to qualify as Small Shareholder comes to 56 shares (200,000/3571.90 with fractional value ignored).

	NSE	BSE
Trading Volume (Shares) on 23^rd Feb 2022	24,26,203	2,09,000
Closing Price	3,563.80	3,565.30

Market Value of 56 shares comes to (Rs 3,563.80 * 56) Rs 199,572.80. which is less than Rs 200,000 and thus fit to participate and tender shares in buyback as a small shareholder.

Note:

The closing price is taken up to 2 decimals.

Frequently Asked Questions

1. How many maximum shares I can buy to be eligible for the retail category in a buyback offer?
The retail category (small shareholders with 15% reservation) in a buyback includes a shareholder who holds the equity shares with a market value of Rs 2,00,000 and lesser as on Record Date.

To be eligible for the retail category in buyback offer, you need to hold shares worth Rs 200,000 and lesser, based on the closing price of the stock on the record date. You need to pick the closing price of the stock exchange that has the highest trading volume of that stock on the record date.

Steps to derive the number of maximum shares that qualify for retail participation:
1. Check the trading volume of NSE and BSE for the stock under buyback offer as on record date,
2. Pick the closing price of NSE/BSE, whose trading volume for that stock is higher.
3. Divide 200,000 by the closing price.
4. Ignore the fractional value to derive the maximum shares that can be bought for the retail category in the buyback.
The above information is not available till the record date arrives. Hence, you can accumulate stock based on the buyback offer price as the most conservative price and eventually collect more stock towards the record date if there is any buffer left.

Example:
- Buyback Company: TCS (Feb 2022 Buyback)
- NSE Trading Volume for TCS: 868.95 crores
- BSE Trading Volume for TCS: 74.78 crores
- Record day closing price of NSE: Rs 3563.80
- Maximum number of shares in Demat account on the record date to be eligible for reserved retail category = 56 Shares (200,000/3563.80)
- Calculation: Rs 3,563.80 * 56 = Rs 199,572.80 (which is less than Rs 2,00,000)
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2. How is the buyback price arrived to be eligible for the Retail category in buyback?

The share price to calculate the maximum number of shares to be eligible under the reserved retail category is the closing price of the stock of that stock exchange, which has the highest trading volume of that particular stock as on Record Date.

For TCS Feb 2022 Buyback, the record date was 23 February 2022. The TCS shares was closed on record date at NSE at Rs 3,563.80 (trade volume 24,26,203) and BSE at 3,565.30 (trade volume 2,09,000). Thus, the price of Rs 3,563.80 is considered to calculate the maximum number of shares to be eligible under the small shareholder or retail category. In this case, the maximum number of shares that qualify as a Small Shareholder as on Record Date is 56 shares.

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3. Does a shareholder with shares in multiple demat accounts eligible for a reserved retail category?

Yes, if the total holding across multiple Demat accounts meets the criteria for small shareholders with Equity shares with a market value of Rs. 2,00,000 and lesser as on Record Date. a shareholder is eligible for a reserved retail category.

The eligibility for the reserved retail category (15% shares) is based on the holding as per PAN Number.

As per SEBI Buyback regulations, the equity shares held by a shareholder across multiple Demat accounts under one PAN are clubbed together to determine the shareholder category, such that no shareholder receives higher entitlement than required.

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