Sebi halves post-buyback cooling off period for firms to six months

Move seen as a boost to corporate repurchase programmes, may make fund raising easier as well

The market regulator, the Securities and Exchange Board of India (Sebi), on Wednesday eased the 12-month cooling-off period that companies have to observe between buybacks and equity fundraising. The move is seen as an incentive to corporates to announce share repurchase programmes to support their share prices battered by the Covid-19 pandemic.

Under Section 24(i)(f) of Sebi’s buyback regulations, a company is restricted from raising further capital for one year from the expiry of the buyback period.

“To enable quicker access to capital, it has been decided to temporarily relax the period of restriction provided in regulation 24(i)(f) of the buyback regulations. Accordingly, the words “one year” shall be read as “six months” in the said regulation,” Sebi said in a circular.
 

The move comes on the back of several suggestions received by Sebi with respect to easing of norms pertaining to capital raising.

The one-year cooling-off period between buybacks and fundraising is to prevent manipulation, say experts.

A company uses its reserves to carry out a buyback, which entails extinguishing of a portion of paid-up shares. As a result, the exercise is the opposite of equity fundraising, where the company issues new paid-up shares to raise money to meet a certain objective.

Already, about a dozen companies have launched share buybacks amid a sharp fall in their stock prices. Some of these include Motilal Oswal Financial Services, Delta Corp, Dalmia Bharat, and Emami. Most ongoing buybacks are underway through the so-called ‘open market’ route. Under this method, a company fixes a maximum buyback price and has the option to buy its own shares on the exchange platform, as long as the stock price remains below the buyback price.

Experts said more companies could launch buybacks after Sebi’s relaxation.