Infosys' $2-billion buyback tied in regulatory knots

High ADR shareholding forces IT major to obtain multiple clearances

Regulatory complexity threatens to derail the proposed $2 billion (Rs 13,000 crore) share repurchase programme of Infosys. 

The board of the Bengaluru-based technology major had in April approved a Rs 13,000 crore reward for shareholders, either through dividends or as a share buyback in the current financial year.

Infosys has appointed investment bankers and lawyers for the buyback, but regulatory differences in India and the US, where its shares are listed, have complicated matters.

Infosys has sought approval from the Securities and Exchange Board of India (Sebi) and the Securities and Exchange Commission (SEC) in the US for the buyback. Sources said Sebi was yet to approve the buyback because it wanted the company to first obtain approval from the SEC.

Legal experts said companies that had issued depository receipts of more than 10 per cent of their shareholding needed to follow procedures laid down by the overseas regulator or needed to secure an exemption. Infosys has issued American and European Depository Receipts, which account for nearly 17 per cent of its shareholding.

“If the American Depository Receipts holding is more than 10 per cent, Infosys needs an exemption from the SEC or it must launch a buyback there too,” said Sudhir Bassi, partner, Khaitan & Co.

An email sent to Infosys did not draw a response.

“The company is committed to returning $2 billion in cash in 2017-18, either through a buyback or through dividends. The company’s management has purposely shied away from indicating a timeline for the buyback because of the complexity involved,” said Ashwin Mehta and Rishit Parikh, analysts at Nomura, who recently questioned the Infosys management on the proposed buyback.

Rival Wipro last week announced a Rs 11,000 crore buyback. Wipro, too, has issued American Depository Receipts, but these account for less than 3 per cent of its shareholding.

Experts said if Infosys failed to secure an SEC waiver, regulatory differences could further complicate the buyback. Sebi prescribes 15 per cent of the buyback be set aside for small shareholders, with holdings worth less than Rs 2 lakh. The SEC, on the other hand, does not permit preferential treatment to any class of investors. 

Also, the buyback tendering process is open for 10 days in India and 20 days in the US.

“Infosys will have to either obtain a waiver or marry the procedures of all the jurisdictions,” Bassi added.

“The US regulator might need to agree to the Indian law being applicable. There might be some hesitation, and in some cases a regulator might want the other regulator to make a decision first. So this will take time,” said the Nomura analysts.