Sebi paper moots stronger norms for share buybacks

Sebi on Wednesday put out a discussion paper envisaging major changes to the existing framework for buyback of shares by companies from open market.

Basically, Sebi proposals seeks to that ensure only serious companies launch a share buyback programme and thereby help protecting the interest of investors.

Accordingly, the market regulator proposes to make it mandatory for companies to buy back a minimum of 50 percent shares of the total targeted amount while the repurchase programme should be completed in three months from the launch date as against the current period of share buyback is 12 months. "To ensure that only serious companies launch the buyback programme, it is further proposed that these companies be mandated to put 25 per cent of the maximum amount proposed for buy back in an escrow account," the paper said.

Further, Sebi has sought comments on the paper titled 'Proposed modifications to the existing framework for buy back through open market purchase' till January 31, 2013. To make the norms stringent, it has suggested that the companies, which are unable to buyback all the targeted shares, should be barred from coming up with another repurchase offer for one year.

Sebi made it clear that "Listed companies coming out with buyback programs may not be allowed to raise further capital for a period of two years" while it also suggested that firms should disclose the number of shares purchased.

Despite the intention disclosed by firms at the time of making buyback offer, it is not used as an opportunity for enhancing the book value of the shares of the company, Sebi remarked on the buyback offer trends. The discussion paper noted that in 75 buyback cases through open market purchases closed during the last three financial years -- from April 01, 2007 to March 31, 2010 -- an average of 49.91 per cent of the maximum offer size was utilised by the companies for the buyback.