Share buyback completion in 22 days to 5% limit for open offer: A look at SEBI proposal to change norms

The Securities and Exchange Board of India (SEBI) released a consultation paper on share buyback on Wednesday and sought comments by December 1. The market regulator has proposed changes concerning the maximum limit, quantum, and the time taken to complete buybacks. The development comes days after Housing Development Finance Corporation (HDFC) CEO Keki Mistry-led sub-group committee submitted buyback proposals on October 30.

SEBI has proposed measures to streamline the buybacks of securities from the open market to make such processes robust, efficient, transparent and shareholder-friendly.

–Max limit for open offer buyback can be 10 percent from April 2023 and 5 percent from April 2024

The sub-group panel has proposed to introduce a glide path concerning the reduction in the maximum limit and the time for completion of the buyback offer under the stock exchange mechanism, according to the consultation paper. Currently, the buyback max limit is 15 percent of the paid-up cap and free reserves of the company.

–Time limit should be cut to 66 days from April 2023 and 22 days from April 2024

Keki Mistry-led panel has suggested reducing the time limit for the completion of an offer, which is six months at present.

– Separate window may be created for open market buyback, the panel has suggested.

– Minimum threshold for buyback via stock exchanges can be raised to 75 percent from 50 percent. The buyback via stock exchanges can be done only in frequently traded shares, it has been proposed, according to the consultation paper.

– Forty percent of buyback needs to be utilised within half of the duration period, the panel has proposed.

– In one day, the firm can’t buy more than 25 percent of 10-day average daily trading volumes, the consultation paper mentions.

– The panel proposes that the company can’t participate in the first 30 minutes and last 30 mins of the regular trading session.

–Buyback price can’t be more than the highest current independent published bid, and it can’t also be more than the last independent sale price reported.

– The panel proposes that in the future escrow account can be opened within two days of an announcement than before the announcement.

– Price can be raised and share numbers cut till one day before the opening date

– Can remove the SEBI review process and allow bankers to send LoF directly to shareholders

– The company now needs to submit 2.5 percent of the earmarked amount in escrow account than a percent

– In a tender offer, the max limit can be 40 percent of paid-up capital and free reserves than 25 percent

– In one fiscal, max size cannot be more than 40 percent of paid-up capital and free reserves

– A net debt-free company can announce up to two tender route buybacks in one FY

– The gap between two tender route buybacks has to be at least six months