Proxy advisory firm suggests modifications to Sebi proposals on share buyback norms

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 Sebi’s 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 Sebi’s (ICDR) Regulations, where companies propose enabling resolutions valid for 12 months. Such a validity period should be brought down to three months after

... contd.