Watawala Plantations PLC, a unit of Sunshine group, has announced a share buyback from its shareholders to the tune of Rs.1.3 billion.
The plantation company said it would repurchase 39.4 million ordinary voting shares from its shareholders at a price of Rs.33 each at a proportion of one ordinary voting share for every six ordinary voting shares held. Watawala has 236.6 million shares in issue.
The offer is scheduled to open on February 6, 2018 and will close on February 20. A share buyback is generally executed when a company feels its share price in the market is undervalued.
Watawala share closed at Rs.28.30 after hitting an intraday high of Rs.28.90 on Friday. As at September 30, 2017, Watawala Plantations’ net asset per share at the group level stood at Rs.18.98.
Also, a company would opt to go for a share buyback when it has surplus cash and feels that the best option it has to do with its extra cash is to buy its own shares. At the group level, Watawala had over Rs.4 billion in retained earnings as at September 30, 2017.
The company recently spun-off its tea business under Hatton Plantations Limited.
A share buyback can also be announced instead of giving a dividend to its shareholders, as in Sri Lanka’s context such a move could be more tax efficient. Further, a repurchase of shares reduces the number of shares in issue and theoretically improves its valuations.