Independent News & Media (IN&M) has been borrowing money to fund its recent share buybacks, it has emerged. The Dublin-listed media group has bought back 29 million shares for a total of €105 million, an average of €3.60 a share, in recent weeks.

At last night's closing price of €3.16, this represents a loss of 44 cent a share or €12.7 million, plus whatever interest is charged on the borrowings used to fund the buyback.

Usually, companies buy back shares if they are overcapitalised. This reduces their issued share capital, increases their stock price and allows them to return some of their excess cash to investors.

However, earlier this year, IN&M said it would buy back shares to compensate for the fact that it has 56 million preference shares issued to New Zealand investors. On November 30th, these investors have the option of converting the preference shares into ordinary shares on a one-for-one basis at whatever the market price is on the day or redeeming them for cash.

As the preference shareholders are likely to convert these instruments to ordinary stock rather than redeeming them for cash, the company will have to issue 56 million shares.

In the absence of shares bought back on the open market and held in treasury, this would have the effect of diluting existing shareholders' stakes in the company by 7 per cent.

The group has said it is buying back shares in advance of the November 30th conversion date to combat any dilution of existing stock. It has not said directly that it will buy back 56 million of the shares it has in issue. However, it is thought IN&M intends doing so and is thus a little over half way to completing the exercise.

As preference shares, which are normally redeemed at a premium to their purchase price after a set period are regarded as a form of debt, sources say IN&M is simply swapping one loan for another by borrowing the money to fund its buyback.