Indian IT major HCL Technologies said its board has approved a buyback of up to 3.50 crore shares worth Rs 3,500 crore. With this, HCL Technologies joins the growing list of IT companies that have opted for the buyback route to make use of huge piles of cash lying idle with them.
Sector leader Tata Consultancy Services and the US-based Cognizant had, last month, announced mega buyback offers to return surplus cash to shareholders. In a BSE filing, HCL Tech said, “…the Board of Directors of the company…have approved the buyback of up to 3,50,00,000 fully paid up equity shares of the company of face value of Rs 2 each (representing 2.48 per cent and 2.45 per cent of the fully paid up equity shares of the company outstanding as on March 31, 2016 and as on date respectively) at a price of Rs 1,000 per equity share payable in cash for an aggregate amount not exceeding Rs 3,500 crore”.
The buyback amount is 16.39 per cent and 13.62 per cent of the fully paid up equity share capital and free reserves (including securities premium account) as per the latest audited standalone and consolidated balance sheet of the company, respectively, for the financial year ended March 31, 2016, it added.
The buyback is subject to approval of the shareholders and all other applicable statutory approvals. At present, HCL promoters and promoter group holds 59.69 per cent stake in the company.
The public announcement setting out the process, timelines and other details will be released in due course in accordance with the buyback regulations, HCL Tech said. IT companies are under increasing pressure from investors to utilise the huge cash pile on books either through share buyback or generous dividend.
Last month, Cognizant had announced a share buyback, bowing to pressure from activist investor Elliott Management Corp. TCS followed suit with a Rs 16,000 crore buyback offer, largest in Indian corporate history.
Infosys too has been under pressure to make a similar offer. While it is yet to make any announcements, the company has sought shareholders approval to change its Articles of Association that includes a provision for buyback.
Share buybacks typically improve earnings per share and return surplus cash to shareholders while also supporting share price during periods of sluggish market condition.