Buybacks Via Stock Exchange To Be Phased Out By 2025, Says SEBI
SEBI makes sweeping changes to its buyback regulations based on the Keki Mistry committee report.
The market regulator made sweeping changes to its buyback regulations on Tuesday in line with the suggestions of the Keki Mistry committee to curb potential misuse.
Buybacks through stock exchanges will be phased out by 2025, Madhabi Puri Buch, chairperson of the Securities and Exchange Board of India, said in the media briefing.
The regulator has made amendments to the process of buybacks, both on the open market and through tender offers.
Open Market Buybacks
Today, companies can conduct open market buybacks through stock exchanges or via the book-building process. The regulator sees the potential for misuse in the former, and the latter has remained unpopular with companies.
Stock Exchange Buybacks
The current limit is 15% of the paid-up capital and free reserves of the company, which has six months to complete the buyback offer. The committee had noted that it's possible for one shareholder’s entire trade to match the company's purchase order. This will rob other shareholders of the opportunity to benefit from the buyback. Also, allowing for an extended buyback period prevents efficient price discovery.
Thus, the committee had suggested that stock exchange buybacks be phased out.
SEBI has accepted the committee's proposal to phase out this route. The details are yet to be notified.
It has also okayed the committee's suggestion on the minimum amount that is utilised for a buyback. The regulator has changed it from the current 50% of the amount earmarked to 75%.
A separate window will be created on the stock exchanges for undertaking buybacks until this option is available.
Tender Offer Buybacks
The amendments to this route are likely to make buybacks less time-consuming and more cost-effective. Key changes include:
Buybacks that take the tender offer route won't need SEBI review of the draft letter of offer.
The duration of the tendering period and the period available for payment to shareholders have been reduced.
The company's board of directors will be allowed the flexibility to revise the buyback price upwards until one working day prior to the record date.