Market regulator Sebi proposing to revamp the share buyback process

The Securities and Exchange Board of India (Sebi), on Wednesday, floated a consultation paper proposing to revamp the share buyback process. The new framework proposes to cut the time period taken for completion of buybacks, enhance the amount companies can repurchase vis-à-vis their free reserves and reduce the cooling-off period between two buybacks.
 

Currently, companies can buyback only 25 per cent of the paid-up capital and free reserves under the tender route. Sebi has proposed an increase in it to 40 per cent. The move will help companies return a greater amount to shareholders in the form of buyback. Further, the committee has suggested that companies should be allowed to undertake two buybacks during a 12-month period as opposed to just one at present.
 

Moreover, it has been proposed to reduce the time period of buyback, from the current six months, to 66 working days from

April 2023.
 

“This may result in artificial demand being created for the relevant company’s shares during such an extended period of time and trading of shares occurring at an exaggerated price,” the Sebi committee noted.
 

The regulator has also prescribed increasing the minimum threshold for buybacks through the open market route to 75 per cent from the current 50 per cent. This is the threshold that companies have to mandatorily utilise from the amount earmarked for buy-back.
 

The proposal aims to prevent companies from announcing buy-backs in cases where there is no real intention to complete the buy-back for the entire amount announced.
 

The recommendations are based on a sub-group setup by Sebi under the chairmanship of KK Mistry, Vice Chairman & CEO, HDFC.
 

Sebi has invited comments on the consultation paper from the public by December 1.