FE Editorial : Sebi takes stock

In its latest attempt at strengthening the rulebook, the capital markets regulator’s focus is on buybacks of shares by companies. Noting that several companies in the past have not been serious about share buybacks, Sebi now suggests that it be mandatory for a company to buy at least 50% of the proposed quantum of shares. So far, Sebi has asked merchant bankers to make sure that at least a fourth of the amount is bought back. Increasing this to 50% would seem to be a fair proposition because, at the end of the day, an announcement to buy back shares must be accompanied by the intent to buy. Sebi’s research shows that companies have, on average, completed 50% of the buyback which, in itself, is not a bad number. However, there have been instances where companies have not bought a single share and that is unpardonable. Asking companies to set aside 25% of the maximum amount that would be needed to buy back the shares in an escrow account would prevent any flippant behaviour from corporates as would the suggestion that companies be barred from hitting the market for money for two years following the buyback. However, Sebi’s wanting to crash the time frame for the buyback to three months from one year at present seems a somewhat stiff condition. Even if empirical evidence shows that 49% of the total shares bought were picked up in the first three months of the buyback period,

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