To prevent misuse (by corporates) of a buyback announcement through the open market route to stabilise their share price, the Securities and Exchange Board of India (SEBI) has tightened the norms for buyback of shares.
The mandatory minimum buyback is now 50 per cent of the offer size, against the earlier 25 per cent. Companies have to forfeit up to 2.5 per cent of the money earmarked for the buyback if they fail to achieve the 50 per cent mark.
Daily disclosure
The maximum buyback period has been reduced from 12 months to six. Companies can neither raise further capital nor make another buyback offer for a year.
Disclosure about the buyback on the company’s Web site has to be done on a daily basis as against the current daily, fortnightly and monthly basis.
Shares bought back every month have to be extinguished by the 15{+t}{+h} of the next month. The last instalment should, however, be completed within seven days of completion of the offer, said SEBI.
Promoters are not allowed to execute any transaction, either on-market or off-market, during the buyback period.
Any buyback offer exceeding 15 per cent or more of a company’s equity capital can be done only through a tender offer.
Separate window
Buyback of physical shares (odd-lot) has been modified and can be done through the creation of separate window in the trading system for tendering the shares, and use of PAN/Aadhaar for verification.
Hemal Uchat, Executive Director, PwC India, said: “The regulator’s decision will only optimise SEBI’s broad purpose to ensure that the platform is not misused by companies to stabilise the share price. It is expected that the regulator will clarify whether the transfer to escrow account will be over and above the buyback amount in case of the open market process. The revised guidelines are also tilted towards encouraging companies to undertake the buyback offer through a tender offer process, against the popular open market process.”