Sebi rings in tighter buyback, easier foreign investor rules

Written by fe Bureau | Mumbai | Updated: Jun 26 2013, 10:31am hrs
Buyback norms will become tougher with the Securities and Exchange Board of India (Sebi) on Tuesday increasing the minimum buyback quantum for such an offer from the current 25% to 50% of the amount announced while lowering the maximum buyback period to six months from the current 12.

Life will become easier for foreign institutional investors (FIIs) and sub-accounts, however, since they need no longer register with Sebi; the regulator has assigned Sebi-authorised designated depository participants with the duties of registering foreign portfolio investors (FPIs) the new investor class announced on Tuesday subject to compliance with the KYC or know your client requirements. Sebi on Tuesday said foreign investors including FIIs, sub-accounts and qualified foreign investors (QFIs) would be merged into a new investor class, foreign portfolio investors (FPIs). The regulator said any investment of less than 10% by any single investor or investor group would be called a portfolio investment; any investment beyond 10% will be treated as foreign direct investment.

The Sebi board also paved the way for a single self-regulatory organisation (SRO) for distributors of mutual fund products.

Tightening the buyback norms, SEBI asked companies to create an escrow account, putting in at least 25% of the amount earmarked for the buyback. If a company fails to meet the minimum buyback commitment, it will forfeit up to a maximum of 2.5% of the amount set aside.

While the promoters have been restrained from any on-market or off-market transactions during the buyback period, companies cannot raise any further capital for one year after the buyback offer closes. It cannot also make a similar offer for a year after the first offer closes. Moreover, companies can buy back 15% or more of their capital only by way of a tender offer. Investors with physical shares will have access to a separate window to give up their shares.

The board also accepted the Chandrasekhar committee recommendations on the risk-based approach for KYC by categorising FPIs into three broad categories. Category 1 would include government and government-related entities such as foreign central banks, sovereign wealth funds, multilateral organisations, etc.

Category 2 would include regulated entities such as banks, asset management companies, investment trusts, insurance and pension funds, among others.

The requirement of submitting personal identification documents like a copy of passport, photograph, etc, of the designated officials of FPIs belonging to Category 1 and Category 2 has also been done away with.

Meanwhile, as part of its attempts to encourage small and medium enterprises (SMEs) and start-ups, the regulator has decided to create a separate institutional trading platform where such entities can list without making an initial public offering (IPO).

This platform, however, will only be for informed investors with the minimum trading/investment size fixed at Rs 10 lakh. Companies listed on this platform will not be permitted to raise capital though they can continue to make private placements. Sebi will soon issue eligibility criteria, continuous disclosure requirements, simplified exit rules and corporate governance norms for this segment.

Sebi has also approved the proposal to have a single SRO for distributors of mutual fund products. Further, to speed up the process, it has decided to announce a cut-off time for accepting applications for being recognised as an SRO. Mutual fund distributors will also be allowed to take limited purpose membership of stock exchanges

Another proposal that has been approved is the one to permit asset management companies to take membership of debt the segment of stock exchanges as proprietary trading members; they will be allowed to only undertake trades directly on behalf of schemes managed by them. The regulator has also relaxed the norms for appointment of custodians by MFs belonging to the same group.