This news came as a jolt to many investors in the private market as Reliance retail announced reducing share capital and promoters taking 100% ownership of the company.
What is reducing share capital?
Tool used in internal restructuring of a company like mergers/demergers etc, reduction of share capital is done to reduce the liability of equity capital of the company.
It is like a precursor to buyback with the major difference being that it is applicable to all shareholders whereas buyback is only for certain percentage of them.
Reduction of Share Capital - Sorting Tax.
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What is exactly happening in the case?
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Reliance retail announced reducing the share capital at 50-60% discount of the prevailing grey market prices. Basically, promoters who hold
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just goes on to show how risky the private market is.
~ 99% is already held by promoters which they want to take it to 100% with this move buying out shares from other minority investors.
~ can they do it at any price? No, they have to follow the valuation rules prescribed by company law in this case.
There might have been previous cases where small companies have done this but seeing a large conglomerate doing it for the first time is an interesting move .