Everything you wanted to know about the Infosys Shares Buyback

Background to the Infosys Shares Buyback:

Infosys, the IT behemoth has announced its INR 13,000 crore buyback. With the present share price of Infosys, it has presented an interesting arbitrage opportunity.

What is in the Infosys Shares Buyback for Shareholders:

With this buyback, the small shareholder (defined in the next subsection) looks to gain from 5-17% returns (post tax, assuming STCG i.e. Short Term Capital Gains Tax of 15%, if the holdings are less than 1 year).  This range would depend on two factors:

• Number of shares with small shareholders, as of record date (i.e. 1st November 2017). In this case, the lower the number of shares with small shareholders, higher the percentage of buyback, and hence higher the returns.
• Number of shares tendered back by shareholders to the company during the tender period. Higher the tendered back shares, lower the percentage of buyback, and hence lower the returns.
• Additional dividend income, adding to the returns: An additional dividend of INR 13/- per share has also been declared. The dividend would have been credited to shareholder’s bank account by the 4th of November.

Timelines for the Infosys Buyback

Infosys has announced the timelines for the buyback [link]. [Updated on 17th November 2017].

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INFOSYS BUYBACK ANNOUNCEMENT
Buyback begins on: November 30, 2017, Thursday 9:15 a.m.
Buyback ends on: December 14, 2017, Thursday 3.30 p.m.

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Assured buyback for Small Shareholders is 28%

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Last date of receipt of completed Tender Forms and physical share certificates: December 18, 2017
Last date of settlement of bids / payment of consideration by the clearing corporations: December 26, 2017
Last date of dispatch of share certificate(s) by RTA / return of unaccepted demat shares by Indian Stock Exchanges to Seller Member / Eligible Shareholder: December 26, 2017
Last Date of Extinguishment of Equity Shares: January 2, 2018

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As for the reasons for the buyback, here’s the quote from the announcement.

2.1. Objectives of the Buyback
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2.1.1. …..will help the Company to return surplus cash to its shareholders in proportion to their shareholding, thereby enhancing the overall return to shareholders;
2.1.2. …expected to improve return on equity and Earnings Per Share by reducing the equity base;
2.1.3. …reservation for small shareholders would benefit a large number of public shareholders, who would be classified as “Small Shareholders”;
2.1.4. …to participate and get cash in lieu of Equity Shares to be accepted under the Buyback offer or not to participate and enjoy a resultant increase in their percentage shareholding in the Company following the Buyback offer, without additional investment as a result of decrease in the paid-up Equity Share Capital.

Steps to be followed for the Infosys Shares Buyback:

• Step 1: Ensure that you purchase Infosys shares on or before 30th October 2017 (Monday).
  • This is because, as per the official notification from Infosys, Infosys has decided the record date as 01st November 2017 (Wednesday). India follows the T+2 system, where the shares are available in your demat account after 2 trading/working days from the date of purchase.
  • For the purpose of buyback, there are two categories of shareholders viz.
    • (a) reserved category for Small Shareholders (“Reserved Category”); and
    • (b) general category for all Eligible Shareholders other than Small Shareholders (“General Category”).
  • a “Small Shareholder” is a shareholder who holds Equity Shares having market value, on the basis of the closing price of the Equity Shares on the Stock Exchanges having the highest trading volume as on the Record Date, of not more than 2,00,000 (Rupees Two Lakh only).
  • the second category is any shareholder not belonging to the “Small Shareholder” category. This would include mutual funds, institutional investors, promoters/founders etc.
  • Typically, the buyback ratio (percentage of shares bought back) is higher for the “Small Shareholder” category, and hence it is a wise idea to buy enough shares just to get into the Small Shareholder category.
  • For the present share price of INR 948.55, technically, you can buy 210 shares, but the clause indicates that the holding value should not exceed INR 200,000 on record date i.e. 01st November. So, if the share price increases further, the total holding value would exceed the “Small Shareholder” cutoff at the end of the record date. So, err on the side of caution, and buy lesser than 210. How low, is how much is your expectation that Infosys share price will increase in the next few days. Your mileage may vary. 🙂
• Step 2: Infosys sends the Offer Tender Form to all eligible shareholders. 
  • The buyback letter has been sent on 19th of November 2017. The guaranteed buyback entitlement ratio is 28% for small shareholders i.e. at least 28% of your total holding shares would be bought back by the company.
• Step 3: Tender the Shares for buyback.