While the InGovern report agreed on the suggestion to revive the minimum quantity of 50% of maximum buyback proposed, it asked the regulator to be selective in implementing its use. The report said the minimum quantity of 50% buyback should be enforceable only where the market price remains below the maximum offer price during the buyback period.
Further, the report raised doubts over clarity on the implementation of these provisions in cases where market prices remain above the maximum offer price after the announcement of a buyback as it could trigger a hold-out by speculators and discourage companies from announcing future buybacks. It is not clear what the penalty is for non-compliance with this condition, stated the report.
On January 3, Sebi had released a discussion paper to modify the existing framework on share buyback and had solicited public comments on the discussion paper on or before January 31, 2013. InGovern agreed to Sebis proposal of completing the share buyback within three months (from the current 12 months) and that companies should deposit 25% of the maximum amount raised via the buy-back in an escrow account.
Further, the Bangalore-based firm opined that such a proposal should also be extended to corporate actions, such as QIP, falling under the purview of Sebis (ICDR) Regulations, where companies propose enabling resolutions valid for 12 months. Such a validity period should be brought down to three months after any shareholder resolution.
InGovern said the two-year period of no further issue post the share buyback (from the current six months) is a long period given the business constraints, economic conditions and market volatility and the moratorium period for further issuance of shares post the buyback programme should be brought down to less than one year. The moratorium of two years will discourage companies from announcing buyback programmes, if enforced, said InGovern.
Further, the disincentive for unsuccessful completion of a buyback programme should also be enforced only in cases where the market price remains below the maximum offer price for the buyback period.
The report said it would be inappropriate to disincentivise the company in cases where the offer would not go through due to rise in market prices after the announcement of a buyback.