JOIN USSebi eases foreign investor rules, sets buyback norms
The Securities and Exchange Board of India (Sebi) on Tuesday cleared the new share buyback norms and also accepted the recommendations of the K M Chandrasekhar committee, which envisaged an overhaul of rules for foreign investors, in a move aimed to attract huge fund flows needed to tackle the problem of high current account deficit.
Sebi simplified the entry norms for them by merging existing FIIs, sub-accounts and Qualified Foreign Investors (QFIs) into a new investor class to be termed as “Foreign Portfolio Investors” (FPIs). For this, it has done away with prior direct registration of FIIs and sub-accounts.
Further, Sebi, at its board meeting on Tuesday toughened rules for share buyback stipulating that the mandating companies must purchase at least 50 per cent of the proposed shares within six months, from the earlier 12 months.
The measures, which also include the companies being asked to keep 25 per cent of the proposed buyback offer amount in an escrow account towards security for performance, to , aimed - which are aimed at averting the companies from making non-serious offers that could wrongly influence the share prices. This failing amount in the escrow account would be forfeited subject to a maximum of 2.5 per cent of the total amount earmarked.
In another major decision, Sebi board also approved measures for making transparent the share allotment to certain investors on preferential basis and said that the payments for such issuances would need to be made from the own bank accounts of such entities.
Further, a company should not raise further capital for a period of one year from the closure of the buy-back except in discharge of subsisting obligations as against the existing 6 months. It should also not make another buy-back offer within a period of one year from the date of closure of the preceding offer.
The disclosure requirements have been rationalized requiring disclosure of the shares bought back on a cumulative basis on the website of the company and the stock exchange, only on a daily basis instead of the current requirement of disclosure on daily, fortnightly and monthly basis.
Sebi also made it clear that companies can buyback 15 percent or more of capital (paid-up capital and free reserves) only by way of tender offer. The procedure for buy-back of physical shares (odd-lot) has been modified which includes creation of separate window in the trading system for tendering the shares, requirement of PAN/Aadhaar for verification.
They (companies) are permitted to extinguish shares bought back during the month, within 15 days of the succeeding month subject to the last extinguishment within seven days of the completion of the offer. And promoters of the company should not execute any transaction, either on-market or off-market, during the buy-back period.