Capital market regulator Securities and Exchange Board of India has floated a proposal to change the existing framework for buy back of shares through open market purchase. In India, companies are allowed to buy back shares through the ‘tender offer’ and ‘open market’ routes, though a majority of the purchases are through the latter route. Typically, a company announces buybacks to support its share price, boost its earnings ratios or to return surplus cash to its shareholders. Sebi has stated that there had been several instances where companies did not buy back even a single share in the 12 month offer period. Also, shares were often bought at far lower prices than the maximum buyback price announced, as there was no proper framework regarding placement of orders and periodicity. Quite often the provision to buy back shares through the open market route is just being used as a tool to manage share prices, according to Sebi. The regulator wants firms to complete their buyback offerings within three months instead of the current norm of 12 months. Also, to ensure only ‘serious players’ launch share buybacks, Sebi wants 25% of the maximum buyback amount proposed be kept in an escrow account upfront. Further, listed companies launching buyback programmes might not be allowed to raise further capital for two years and could also face restrictions on off-market deals during buybacks.
