Paytm’s move comes 13 months after its disastrous public listing in November last year.
The board of One 97 Communications, parent of fintech brand Paytm, on Tuesday, approved a proposal for the buyback of equity shares up to Rs 850 crores via an open market route. Paytm will repurchase 10,493,827 shares, representing about 1.62% of the paid-up share capital of the company, at Rs 810 apiece.
According to the company’s stock exchange filing, all directors present voted unanimously in favor of the proposal, including all independent directors. Further, the company’s directors and key management personnel will not sell any shares during the buyback period, it added.
“Paytm board believes that this buyback is a sign of confidence that the company is on a clear path to deliver cash flow profitability, and this buyback will not have any impact on its growth plans in the near future or on its profitability plans,” Paytm said.
Under buyback, a company repurchases its shares from the existing shareholders usually at a price that is higher than the market price. As the company repurchases its shares, the number of outstanding shares in the market reduces which in turn increases its value.
Paytm’s move comes 13 months after its disastrous public listing in November last year where the stock was issued at Rs 2,150 and later plummeted catastrophically to as low as Rs 522, which is down around 75% from the opening. One major reason for the mega plunge was that the investors stayed worried about the company’s overvaluation amid fears of a global economic slowdown. The stock is currently trading around Rs 531 on BSE (as of 12:58 p.m. on December 14).
“There is surplus liquidity that can be productively applied to a buyback of shares,” Paytm said, reiterating that proceeds from the initial public offering are not being directed toward the share repurchase plan.
Furthermore, the SoftBank-backed digital payments firm is also facing criticism from various stakeholders and analysts on the objective it will achieve via this buyback. While some believe Paytm could manage its stock price by effectively creating a floor on the share price, others expressed disappointment over the open market route of buyback instead of a preferred tender method.
In an open market method, a company buyback shares from the market at a varying price up to the provided cap. On the contrary, a company buyback shares directly from the shareholders at a fixed price in a tender route. Unlike in the open market route, 15% of the buyback of shares is reserved for small or retail investors in the tender method.