Sebi comes out with consultation paper on share buyback

Markets regulator Sebi today came out with a consultation paper on share buybacks and takeovers, including allowing companies more time to raise open offer price.

A firm may buy back shares and other securities on a proportionate basis through tender offer, open market -- via book building process and stock exchange and odd-lot holders.

This will be applicable provided that no offer of buyback for 15 per cent of the paid up capital and free reserves of the firm will be made from the open markets.

The fresh consultation process will review buyback norms in order to simplify language, remove redundant provisions and inconsistencies and update references to the Companies Act as well as other new Sebi norms.

The regulator has sought comments from the public on the proposals till April 15 and the final regulations will be put in place after taking views of all the stakeholders.

Under the proposal, the maximum limit of any buyback would be 25 per cent or less of the aggregate of paid up capital and free reserves of the company.

Besides, the ratio of the aggregate secured and unsecured debts owed by the company after buyback may not be more than twice the paid-up capital and free reserves.

According to the proposal, the company should not buyback its shares to delist its scrips. Besides, the firm would not repurchase its scrips through negotiated deals, whether on or off the stock exchange through spot transactions or through any private arrangement.

Also, a person should not deal in securities of the company on the basis of unpublished price sensitive information relating to buyback of shares.

"A company shall not make any offer of buyback within a period of one year reckoned from the date of closure of the preceding offer of buyback, as per the proposal.

The company may not be allowed to purchase its own shares through any subsidiary company and any investment company.

Further, the firm may not directly or indirectly purchase its own shares if a default is made by it. However, such buyback may not be prohibited if the default is remedied and period of three years has lapsed after such default ceased to subsist.

If a company completes buyback of its shares, it should not make a further issue of the same kind of scrips including allotment of new shares within six months months except by way of bonus issue or in the discharge of subsisting obligations such as warrants, stock option schemes and conversion of preference shares or debentures into equity shares.

The companies need to complete their buyback offers within a period of one year of passing a special resolution by the general meeting or the special resolution passed by the board of directors.

Besides, the regulator revises framework with regard to procedure of the offer and duties of merchant banker among others.

The company's board, in the interest of investors and the securities market, may relax the strict enforcement of any requirement of these buyback regulations if the board is satisfied that the requirement is procedural in nature or the requirement may cause undue hardship to investors.

The Securities and Exchange Board of India (Sebi) has proposed allowing companies to raise the open offer price.

In cases, where the offer to delist has failed the entity concerned would be permitted to increase the open offer price.

The acquirer, through the manager to the open offer, should within five working days from the date of the announcement should file with the board, a draft of the letter of offer.

"Provided that the offer price shall stand enhanced by an amount equal to a sum determined at the rate of 10 per cent per annum for the period between the scheduled date of payment of consideration to the shareholders and the actual date of payment of consideration to the shareholders," as per the proposal.