Market regulator ushers in new buy-back norms, relaxes FII entry

Written by ENS Economic Bureau | Mumbai | Updated: Jun 26 2013, 14:18pm hrs
SEBIPrior registration of FIIs and sub accounts with Sebi will not be required. (Reuters)
The Securities and Exchange Board of India (Sebi) on Tuesday tightened rules for company promoters buying back shares under which promoters would have to ensure they use up at least 50 per cent of the money earmarked for stock repurchases. The current minimum is 25 per cent.

Any company that fails to meet the new norm will have to forfeit 2.5 per cent of the amount set aside for the buyback, the capital markets regulator said after a board meeting. Sebi also reduced the maximum period available for buying back shares from the open market to six months of the date of offer from 12 months.

Companies would not be able to make another buyback offer within a year of the closure of the previous one.

If a company wants to buy back stock equivalent to 15 per cent or more of its paid-up capital, it can only so by way of a tender offer.

Among other major decisions taken on Tuesday, the Sebi board also introduced uniform entry norms for existing foreign institutional investors (FIIs), sub-accounts and qualified foreign investors (QFIs), combining these into a single category called foreign portfolio investors (FPI).

Sebi said FPIs would be placed under three categories based on their risk. In line with the recommendations of the Rationalisation of investment routes and monitoring of foreign portfolio investments that was recently submitted by the committee chaired by KM Chandrasekhar, Sebi said the first category would include government and government-related entities such as foreign banks, sovereign wealth funds, multilateral organisations and so on.

The second category includes banks, asset management companies, broad-based funds such as mutual funds, investment trusts, insurance and reinsurance companies, university funds, pension funds and university related endowments already registered with Sebi. All other FPIs that do not fall in the first two categories will fall under the last category, the regulator said.

The requirement of submitting personal identification documents such as copy of passport, photograph etc. of the designated officials of FPIs belonging to Category I and Category II shall be done away with, Sebi said in a statement.

It is a good idea as foreign investors look for certainty, clarity and simplicity. They should however look to get the taxation of QFIs right and CBDT should support, said Sandeep Parekh, founder of Finsec Law Advisors and a former ED of Sebi.

Parekh, however, has his reservations on the buy-back changes and said that it should be left to the companies to decide how much to buy.

The board also decided to allow start-up companies and small and medium enterprises to list themselves on institutional trading platform without having to come out with an IPO thereby providing an easier exit option for informed investors including angel investors, VCFs and PE.

Sebi has exempted such companies from the requirements of rules under which they have to offer upto 25 per cent shareholding to public through an IPO.

On Mutual Funds, the Sebi board approved to have single SRO for mutual fund distributors. It also allowed the distributors to take limited purpose membership of stock exchange distribution and redemption of MF units as it will help them to reduce their financial and complaince burden.

New order

* Mandatory buy-back of the

proposed size to be raised from 25% to 50%

* Buyback to be completed in six months against 12 months earlier

n Companies wont be allowed to raise further capital for one year

* Allowed start-ups to list on institutional trading platform

* Subscription to preferential issue will only be allowed through allottees own bank account

* Approved single SRO for mutual fund distributors