Companies which propose talk about buybacks just to stabilize their sagging talk about price instead of for the explained reason for improving shareholder value, may no longer find it easy to fool shareholders and the regulator. The Securities and Exchange Board of India has proposed stringent rules for share buyback so that company managements are held to their word.
Sebi has issued a discussion paper on its proposals and sought public feedback by January 31.
Following are the key proposals by the regulator:
Companies will have to buy back a minimum of 50 percent of the proposed buyback quantum.
Buy-back of 15% or even more of (paid up capital + free reserves) should be only by using a tender offer method.
Companies shall need to complete the buy back 3 months.
Companies will need to place 25% of the utmost quantity proposed for buyback within an escrow account as proof of their intent.
Companies coming out with buyback programs not be allowed to raise further capital for a period of two years.
Companies unable to buyback 100% of the proposed amount (or the proposed maximum number of shares) not be allowed to come with another buyback for a period of at least one year.
Company shall disclose the real amount of shares purchased and the total amount utilised to the exchanges on daily basis.
Companies need to disclose monthly why the proportionate volume was not procured through the month.