Sebi discussing buyback rules; may soon release papers for feedback; Know full details

Many proposals like giving companies the exemption of buyback up to a higher amount and giving the opportunity to buyback more than 1 time in a year are under consideration. Discussions are being held regarding the rules of buyback in the share market. This is being reviewed again by SEBI. What is being reviewed? How the rules are being considered? What can be changed? Brajesh Kumar brings the full report.

For a long time, this demand was going on from companies, especially those companies who have a lot of cash, that they want to reward the investors but there is a restriction in the rules of SEBI that the buyback will not exceed the given amount. So, these companies sent a representation to SEBI and the Ministry of Corporations.

5 points that Sebi are considering:-

1. The difference between the buybacks is 1 year. Can it be reduced to 6 months or 9 months?

2. Increase the limit of how much a company can do buybacks? According to the existing rule, if you buyback through a tender offer, then you cannot do more than 25% of your free reserve and paid-up capital. It was a special demand of IT companies that this limit should be increased, which is being considered.

3. Can flexibility be given in fixing the price of buyback? According to the old rule, when the buyer goes to the board, then he/she has to tell the price. And it takes 3-4 months to go from the board to open the actual offer and in between this the whole price equation gets messed up. So, this flexibility is also being considered whether it can be given or not.

4. The limit of buyback through the open market and the tender offer is different. What is through the open market is 15% and what is through a tender offer is 25%. So there is a need to keep them separate or all should be 25%. This is also being considered.

5. There are different ways of buyback - open market, tender offer, book building process. There is a huge difference in their opening and closing time - from 15 days to 6 months. So can all of this be equal?

These are all the points on which the Primary Market Advisory Committee of SEBI is discussing and very soon a discussion paper will come out. Then after taking feedback, these rules will be carried forward.

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