Infosys buyback gets approval from Sebi

Sources say Sebi allowed fungibility for Infosys ADRs, GDRs so holders can tender shares in buyback

The Securities and Exchange Board of India (Sebi) has approved Infosys' share buyback and also offered a solution for participation by holders of the company’s American Depository Receipts (ADRs) and Global Depository Receipts (GDRs). 

The cash-rich technology major had in April proposed to pay Rs 13,000 crore to shareholders through a buyback, but the proposal was tied in regulatory knots, while rivals Wipro and HCL Technologies went ahead with their share repurchase programmes.

According to sources, Sebi has allowed fungibility for Infosys ADRs and GDRs so that their holders can tender their shares in the buyback. This will allow depository receipts to be converted into domestic shares for tendering and reconverted into depository receipts if not accepted in the buyback.

The current regulatory framework does not allow such fungibility and Sebi has approved it in principle as a special case, according to sources. The approval was granted in consultation with the US Securities and Exchange Commission (SEC), the sources added.  

“The US SEC asked Sebi to allow direct buyback of shares so that ADR holders can also benefit from the buyback. After various rounds of consultations, Sebi recommended that ADR holders could convert ADRs into stocks and then tender,” an official said.

Sources said the Infosys management recently met Sebi officials to clear the regulatory hurdle. An email to Infosys went unanswered. 

As a substantial portion of Infosys shares are held as ADRs and GDRs, the company had to ensure all shareholders received the benefit of the buyback. This, however, meant Infosys had to deal with multiple regulators.

Typically, companies that have issued depository receipts of more than 10 per cent of their shareholding need to follow procedures laid down by the overseas regulator. If depository receipts account for less than 10 per cent of the total shareholding the company is not mandated to announce a repurchase for their holders. Nearly 17 per cent of Infosys’ shares are held as ADRs and GDRs.

“Every regulator has different rules. In the case of Infosys, each of them will want to resolve the issue without compromising the interests of their shareholders,” said Sudhir Bassi, partner, Khaitan & Co.

Infosys is likely to opt for a tender, where eligible shareholders must inform the company of the number of shares they intend to part with. In case the buyback is oversubscribed, shares are accepted proportionately. Both the promoters and public shareholders can offer their shares in the tender. An open market buyback allows only public shareholders to offer their shares. In 2012, the Sebi overhauled regulations to ensure only companies with serious intentions announced share buybacks.