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Explained: Why is GAIL mulling a share buyback?

The board of directors of GAIL, India's largest gas distributor, is set to consider a buyback of shares. What is a share buyback? How will this benefit the government?

By: ENS Economic Bureau | New Delhi |
Updated: January 19, 2021 10:54:12 am
Explained: Why GAIL is considering a share buyback?Shares of GAIL rose over 5% to Rs 143.4 in intraday trade on the back of the repurchase announcement.

The board of directors of GAIL, India’s largest gas distributor, is set to consider a share buyback which will result in the distribution of surplus reserves to shareholders including the Government of India.

The Centre has reportedly asked a number of public sector units to issue buybacks to help shore up its finances, which have been hit by the pandemic. In a filing to stock exchanges, the company said that its board would meet on January 15 to consider share buyback and payment of interim dividend for the financial year ending March 2021.

What is a share buyback?

A share repurchase or buyback is a decision by a company to purchase its own stock from the market. Such a move reduces the number of outstanding shares of the company and tend to push up their price and is often undertaken when management considers the company’s shares undervalued.

It is also a key way to transfer surplus earnings to shareholders and tends to lead to an increase in share prices. Shares of GAIL rose over 5% to Rs 143.4 in intraday trade on the back of the repurchase announcement.

How will this benefit the government?

The government holds 52.1% stake in GAIL. In a recent share repurchase offer by NTPC, the government of India sold shares worth over Rs 1,066 crore back to the company accounting for around 47% of the shares accepted under the repurchase offer. The government also received Rs 1,377 crore from a share buyback offered by NMDC taking up over 99% of the buyback offer.

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