The market regulator is insisting that companies either completely buy back the number of shares for which it has approval, or spend entire amount earmarked for the offer. Companies seek clearance from Sebi for the offer based on a resolution from the board of directors that specifies either percentage of shares that management can buy back or the amount it may spend on the buyback offer. A Sebi official, preferring to be anonymous, said by stipulating that the company meet at least one condition, and keep buying at regular intervals through the period of the offer was meant to protect interest of the shareholders.
"Otherwise a company may say it will buy 10 per cent at a significant premium, and that will affect the share price in the near term. Then it buys less, or does a single large transaction on one day, and the individual investor is not benefited by the offer," the Sebi official said.
Investment bankers cite the example of buybacks of Sasken Communication Technologies and Patni Computer Systems that have been pending due to this reason.
The resolution passed by companies is an in-principle agreement based on maximum limits under regulations, given financial status of an entity, a Sasken official said. Companies should be allowed to spend less than that amount if they wish, even though the board approval is for higher amounts, he said.
To that the Sebi official said companies should fine-tune their requirements at the time of approval and communicate exact details of buyback to shareholders at start of offer.
Otherwise, such information is misleading for those who intend to tender shares in the buyback, he said. Sasken has a board approval to buy up to 9.45 per cent stake in the company, or shares worth up to Rs 40 crore, at up to Rs 260 a share.
For Patni, the sanction is for up to 10 per cent stake, or Rs 237 crore, at Rs 325 a share. Shares of Sasken closed at Rs 162.85 on the National Stock Exchange, up 1.65 per cent from Wednesday. Patni was at Rs 242.40, down 3.02 per cent.
Among the companies whose buyback offer is currently open is Mastek that has agreed to comply with Sebi requirements. Mastek's offer got going after it agreed to buy back shares once every week, and meet the spending limit, the Sebi official said.
It had earmarked Rs 65 crore for the purpose, and said it will buy back shares at up to Rs 750 each.
