The Securities and Exchange Board of India (SEBI) on Tuesday, 20th December,2022 amended the buyback rules to gradually phase out the Open Market Route in favor of the Tender Route. SEBI has improvised the present share buyback norms for listed companies and has tightened the disclosure rules to increase the transparency and credibility of the market.

Over a period, buyback regulations have also evolved with the growth and complexity of the market. Initially, buyback was allowed only from the open market through stock exchanges. Subsequently, the tender method for buyback was also introduced. It was felt that the stock exchange route is less efficient as it may be difficult to buyback through this route the full quantity without affecting the share price. Also, it may take a long time to complete it. Further, there is a possibility of one shareholder’s entire trade getting matched with the purchase order placed by the company, thus depriving other shareholders to avail the benefit of the buyback. Therefore, a time-bound program under the tender route was considered a superior method.

Few of the major changes made by SEBI are:

Increase in the limit of utilization of proceeds:

The regulator has amended the rules on the way of using of the funds which are kept for buyback. The buyback norms at present require companies to utilize at least 50 per cent of the amount earmarked for this purpose. On Tuesday, SEBI has raised the minimum threshold of 50 per cent to 75 per cent for the purpose of utilization. In case of failure to use the minimum proceeds by the company, SEBI can direct the merchant banker to forfeit the amount deposited in an Escrow account.  

Reduction in time for the process of buyback:

In buyback under the Tender route, SEBI has reduced the timeline for completion by 18 days. It has dropped the requirement to file the draft letter of offer.

Advertisement for buyback to increase awareness/knowledge:

SEBI has made it mandatory to place the relevant advertisements/ documents with respect to buyback, such as, copy of the public announcement, letter of offer etc. on the respective website of the stock exchange(s), merchant banker and the company for better dissemination of information to shareholders.

Revision of price for Buyback:

SEBI has permitted the upward revision of the buyback price until one working day prior to the record date.

Additional Points:

  • SEBI has also decided to create a separate window on stock exchanges for undertaking buyback till the time tender offers are fully in effect.
  • SEBI has proposed to reduce the timeline for completion of process of buyback to 66 days with effect from 1st April, 2023 and to 22 working days from 1st April, 2024.
  • It has also been proposed that Open Market Route will be completely closed by 1st April, 2025.

These amendments aim to streamline the process of buyback, create a level-playing field for investors and promote the ease of doing business. We hope that the new regime to choose tender route for buyback with a shorter timeline and ability to revise the price upwards until the late stage will make the buy-back scheme much more robust, market friendly as well as investor friendly.

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