The regulator had set up a sub-group under the chairmanship of Keki Mistry, vice chairman of
, to propose changes to the process of buybacks from the open market – through the book-building process and stock exchanges – to make it more efficient and shareholder-friendly.
The committee has suggested introduction of a glide path for reduction in the maximum limit and time period for completion of a buyback offer.
At present, Sebi rules provide that buybacks from open market should be less than 15% of the paid-up capital and free reserves of the company.
“Under the stock exchange route, there is a possibility of one shareholder’s entire trade getting matched with the purchase order placed by the company and thus depriving other shareholders to avail the benefit of buyback. This runs contrary to the underlying principle of equitable treatment,” Sebi said in a discussion paper.
Also, rules currently provide a time period of six months from the date of opening of the offer for the buyback offer to be closed.
“This may result in artificial demand being created for the relevant company’s shares during such an extended period of time and trading of shares occurring at an exaggerated price,” Sebi said.
The panel has proposed reducing the threshold limit and time period for completion of buyback offer to 10% and 66 days from April 01,2023, 5% and 22 days from April 01,2024. Finally, the open market option can be closed down for buyback offers from April, 2025.
It also proposed creation of a separate window on stock exchanges for undertaking buybacks.
“It is also noted that since shares are bought back at prevailing market price, acceptance of shares under buyback is a matter of chance for most shareholders and thus there is no clarity as to whether shares are accepted under buyback or sold in open market and thus shareholders are unable to claim the benefits arising out of buybacks,” Sebi said.
The Sebi committee has also proposed to increase the minimum threshold to 75% from the existing 50% that companies are required to earmark for a buyback.
“This will prevent companies from announcing buy-backs in cases where there is no real intention to complete the buy-back for the entire amount announced,” Sebi said. This restriction would apply to buy-backs undertaken through stock exchanges and not through other mechanisms.
The panel has also suggested that the option to undertake open market buy backs through stock exchanges should only be available to companies whose shares are frequently traded.
