SEBI to phase out share buyback via stock exchange route

The board of the Securities and Exchange Board of India (SEBI) on Tuesday approved phasing out of share buyback through the stock exchange route in a gradual manner.

The SEBI board also increased the minimum utilisation of the amount earmarked for buyback through the stock exchange route from existing 50% to 75%.

This comes after a SEBI sub-group, headed by HDFC vice-chairman and CEO Keki Mistry, has proposed that the minimum threshold of 50% can be increased to 75%. This, according to SEBI, will prevent companies from announcing buy-backs in cases where there is no real intention to complete the buy-back for the entire amount.

The market regulator said it will create a separate window on stock exchanges for undertaking buyback till the time buyback through stock exchange is permitted.

For share buyback through the tender offer route, SEBI reduced the timeline for completion of buyback by 18 days by removing the requirement of filing a draft letter of offer with SEBI, and reducing the duration of the tendering period and period available for payment of consideration to the shareholders. The market watchdog permitted upward revision of buy-back price until one working day prior to the record date.

SEBI says these amendments aim to streamline the process of buyback, create a level playing field for investors and promote ease of doing business.

This comes a month after SEBI released a consultation paper seeking comments from the public on the different proposals to amend the existing regulations on share buybacks. 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, SEBI had said, adding that this runs contrary to the underlying principle of equitable treatment which forms the basis of all the corporate actions.

"The buyback regulations currently provide a time period of six months from the date of opening of the offer for the buy-back offer to be closed. This may result in artificial demand being created for the relevant company’s shares during such extended period of time and trading of shares occurring at an exaggerated price. Allowing for an extended buy-back period thus prevents efficient price discovery," the market regulator said last month.