Is De Nora share buyback proposal another manipulation episode?
Moneylife Digital Team 03 August 2011

The Goa-based manufacturer of electrolytic products has put off a share buyback plan without giving any reason, two weeks after making the announcement which saw the stock price shoot up by over 28%. Now, it has lost 18%

Company promoters are using a well-proven method to manipulate the price of their stocks and the inaction of the market regulator in these instances indicates that it does not have a problem with such manipulation.

The method is simple: Just make a positive announcement, whether it be about the issue of bonus shares, a proposal to buy back shares, or simply timing the announcement of good results. The stock price rises, the manipulators register good gains, then step back from the announcement.

A recent example is the announcement by Goa-based De Nora India that it would consider a share buy-back.

On 13 July 2011, the company stated in a filing to the Bombay Stock Exchange (BSE) that it would consider a share buyback plan at its board meeting. "A meeting of the board of directors of the company will be held on 27 July 2011, inter alia, to consider and take on record the unaudited financial results for the quarter ended 30 June 2011 and to consider a buyback of equity shares in accordance with SEBI regulations and subject to regulatory authorities."

Reacting to the news, the company's stock, which was languishing for about eight weeks, jumped by 5% to close at Rs89.35 on the day of the announcement. Then onwards, it continued to rise till 26 July 2011, when it closed at Rs104.50, a 17% gain in two weeks. The stock hit an intra-day high of Rs112 on 25th July.

Then, on 27th July, the company said it had decided to defer the buyback plan without giving any reason. The stock dropped 7% to close at Rs97.05. The company informed the BSE that the "board of directors of the company at its meeting held on 27 July 2011, inter alia, has decided to defer the proposal for buying back its own shares by the company."

Market observers point out that these moves are executed smartly. While the company announced its results at about 1.45pm, the information about deferring the share buyback was available only at about 3.30pm, around the time the stock market closes. Investors are asking why the company had to announce the proposal to buy back shares in the first place, if it was unsure about going through with it.

"It has now become a good stock manipulation exercise to call a board meeting on a share split, bonus issue, or buyback and then simply say that the board has deferred it. It is high time that the Securities and Exchange Board of India acts to stop such manipulation," complained one retail investor, who has invested in De Nora India.

A message from Moneylife to the company by email a week ago, has not received any response yet.

Comments
Borkar MR
1 decade ago
A few Qs.A) How much cash is avlbl?(B) How much promoters hold? (C) what qty they sold? (D) Was a white knight spotted?
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