SEBI invites feedback for further liberalization of share buyback process

17 Nov 2022 , 10:44 AM

The Securities and Exchange Board of India (SEBI), on Wednesday has proposed a consultation paper to revamp the share buyback process. 

The new framework suggests cutting the time period taken for completion of buybacks, enhance the amount companies can repurchase from their free reserves and reduce the cooling-off time period between two buybacks.

Currently, under the tenure route, companies can buyback only 25% of the paid-up capital and free reserves. Sebi has proposed an increase in it to 40%. This initiative will help the companies to return a greater amount to shareholders in the form of buyback. Further, the committee has presented the suggestion that they should be allowed to undertake two buybacks during a 12-month period as opposed to just one at present.

Moreover, it has been proposed to cut the time period of buyback, from the current six months to 66 working days starting from April 2023.

“This may result in artificial demand being created for the relevant company’s shares during such an extended period of time and trading of shares occurring at an exaggerated price,” the Sebi committee noted.

SEBI has also prescribed increasing the minimum threshold for buybacks via open market route to 75% from the current 50%. This is the threshold that companies have to mandatorily utilize from the amount assigned for buy-back.

The proposal aims to prevent companies from announcing buybacks in cases where there is no real intention to complete the buy-back for the entire amount announced.

The recommendations are based on a sub-group setup by SEBI under the chairmanship of KK Mistry, Vice Chairman & CEO, HDFC.

Capital market regulator SEBI has invited feedbacks on the consultation paper from the public by December 1.

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