Sebi mulls tightening buyback framework

Jan 03 2013, 08:40 IST
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With this proposal, Sebi aims to tighten norms around buyback of shares and make the process a more effective exercise.  (Reuters) With this proposal, Sebi aims to tighten norms around buyback of shares and make the process a more effective exercise. (Reuters)
Summary* Proposals aimed at effectiveness, transparency

Market regulator Securities and Exchange Board of India (Sebi) has proposed to increase the minimum quantity of share buyback to 50 per cent of the proposed buyback and bring down the time frame for the exercise to three months.

At present the minimum quantity stands at 25 per cent of the proposed buyback and the exercise can be completed in 12 months.

With this proposal, Sebi aims to tighten norms around buyback of shares and make the process a more effective exercise.

In addition, the regulator has proposed that companies who do not achieve 100 per cent of their target be restrained from the exercise for a period of one year.

Towards ushering in transparency, Sebi has also brought proposals that mandates disclosure of shares purchased and the money spent towards it on a daily basis, which would do away with the current fortnightly requirement.

It further said, “Companies have to disclose on a monthly basis why the proportionate quantity was not bought during the month.”

The regulator came out with a discussion paper on modifications to the existing framework for buyback on Wednesday.

Sebi’s proposal on hiking the minimum to 50 per cent. stems from the rise in average buyback of around 50 per cent in FY’10 and FY’11 (from nil in some cases in the past). This was on account of the Securities Appellate Tribunal order in 2008 mandating merchant bankers to ensure that a minimum of 25 per cent of the proposed buyback is bought.

Further, during the same period, Sebi observed that the process was completed in three months in a majority of cases and has formed a view that a 12-month time frame is not entirely necessary.

Sebi argued that companies launch buybacks when there are no investment opportunities in the near future, and proposed that they may not be allowed to raise further capital for a period of two years, as against six months at present.

Sebi is also of the view that purchase through tender is suitable when large amount of funds is to be distributed among shareholders.

KEY PROPOSALS

* Raise minimum quantity to 50% of proposed buyback

* Time frame be reduced to three months as against a year

* Daily disclosure of purchase

* No buybacks for a year in case 100% target not met

* No raising capital for two years if buyback successful

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