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CS Professional · Corporate Restructuring, Valuation and Insolvency · Types of Corporate Restructuring

Kapoor Engineering Ltd has Rs 100 crore of free reserves and surplus cash. Its promoters hold 60% and want to raise their percentage stake without investing any money, and to return surplus cash to shareholders. Which tool best achieves both objectives?

Buy-back of shares achieves both aims. The company uses its surplus cash to extinguish shares, returning money to tendering shareholders, and the reduced share count raises the promoters' percentage holding without any investment from them. The other tools add shares or need fresh funds.

  1. ARights issue to existing shareholders
  2. BBuy-back of shares from shareholdersCorrect
  3. CIssue of sweat equity shares to promoters
  4. DConversion of debentures into equity

Explanation

A buy-back extinguishes shares using company cash, which returns surplus to shareholders and reduces the number of shares outstanding. Promoters who do not tender then hold a larger percentage without spending money. A rights issue, sweat equity or debenture conversion would add shares or require funds, and does not return cash.

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