SEBI for stronger share buy-back norms

January 02, 2013 06:12 pm | Updated November 17, 2021 05:55 am IST - Mumbai

BL 28-4-2006 MUMBAI: SEBI office in Mumbai on April 28, 2006. On Thursday, Sebi had banned 24 key operators in connection with the IPO scam. Indiabulls Securities, Anagram, and Karvy Stock Broking are among the 24 operators that have been barred.

BL 28-4-2006 MUMBAI: SEBI office in Mumbai on April 28, 2006. On Thursday, Sebi had banned 24 key operators in connection with the IPO scam. Indiabulls Securities, Anagram, and Karvy Stock Broking are among the 24 operators that have been barred.

Securities and Exchange Board of India (SEBI) has proposed significant changes to the existing framework for buyback of shares by companies from the open market that require the process to be completed in three months and minimum repurchase to be 50 per cent of the target.

At present, the period of share buyback is 12 months.

“... it is proposed that companies complete the buy back in three 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,” SEBI said in a discussion paper.

The regulator has suggested that the companies, which are unable to buyback all the targeted shares (or proposed amount), should be barred from coming up with another repurchase offer for one year.

Another suggestion is that companies should disclose the number of shares purchased and the amount utilised to the exchanges on a daily basis.

Citing buyback offer trends, SEBI said despite the intention disclosed by companies to their shareholders at the time of making buyback offer, the buyback offer was not used as an opportunity for enhancing the book value of the shares of the company.

“It has been observed that in 75 buyback cases through open market purchases, which closed during the last three financial years (from April 1, 2007 to March 31, 2010), an average of 49.91 per cent of the maximum offer size (as disclosed in public announcement to shareholders) was utilised by the companies for the buy back,” the paper said. Further, SEBI said in many instances, companies took shareholders/board approval for buybacks but did not take a “single step to buy the shares”.

Generally, buybacks are intended to return surplus cash to the shareholders, to provide support for share price during periods of temporary weakness and to increase the underlying share value.

0 / 0
Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in

Comments

Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.