Sebi to gradually phase out share buyback through stock exchange mechanism

Capital markets regulator Sebi on Tuesday decided to gradually phase out buyback of shares by companies through the stock exchange route to address the drawbacks associated with the existing mechanism.

Sebi Chairperson Madhabi Puri Buch said the regulator has chosen the tender offer route for share buyback as the present mode is vulnerable to favouritism.

"This is a glide path and will lead to the phasing out of the present buyback mode (through stock exchange route)," she told reporters after its board meeting here.

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Also, the board has decided that companies would have to utilise 75 per cent of the proceeds of the buyback undertaken through the stock exchange route from the existing minimum of 50 per cent.

Further, Sebi said that buybacks will be undertaken through a separate window on stock exchanges till the time they are permitted through the exchanges.

Since shares are bought back at the prevailing market price, acceptance of shares under buyback is a matter of chance for most shareholders. There is no clarity as to whether shares are accepted under buyback or sold in the open market and thus shareholders are unable to claim the benefits arising out of buybacks.

The phasing out the route would address the drawbacks associated with the existing buyback of shares through the stock exchange mechanism.

In its board meeting, Sebi has approved an amendment to buyback of securities rules which would streamline the process of buyback, create a level playing field for investors and promote ease of doing business.

A Sebi committee, headed by HDFC vice-chairman and CEO Keki Mistry, proposed that the mechanism of share buybacks through open market transactions should be abolished in a phased manner, with the option to close down the route from April 2025.

With regard to share buyback through tender offer route, Sebi has decided to reduce timeline for completion of buyback by 18 days by removing the requirement of filing draft letter of offer with the regulator and its observations thereof, and reduction of the duration of the tendering period and period available for payment of consideration to the shareholders.

Also, it has allowed upward revision of buy-back price until one working day prior to the record date.

In addition, the regulator would make it mandatory to place the relevant documents with respect to buyback, such as, copy of the public announcement, letter of offer among others in the respective website of the stock exchanges, merchant banker and the company for better dissemination of information to shareholders.