Complete 25% buyback: Sebi to firms

The regulator had recently asked three companies to increase their minimum offers substantially.

The Securities and Exchange Board of India (Sebi) wants companies making offers for buyback of own shares to make a firm commitment to buy at least 25 per cent of such offers.

The move comes as the regulator found many companies announcing buybacks for huge sums during the market crash of 2008-09, but closeing the offer without buying enough shares from the market.

FALLING IN LINE Companies that increased minimum offer in buybacks
Name	Month	Maximum number of shares	Minimum number  of shares
			original	revised
HEG Ltd	April	1,928,571	386,000	485,000
ECE Indus	October	875,000	200,000	300,000
Jindal Polyfilms	November	4,000,000	400,000	1,000,000
Source: Corrigendum issued by companies

With the stock prices downhill again, buybacks are coming back and this time Sebi is tightening the screws. Last week, Sebi told Uttar Pradesh- based Jindal Poly films to raise its minimum buyback offer to one million shares from 400,000 in the original public announcement. The company wanted to buy back a maximum of four million shares through the offer.

"Over the last six months, Sebi has become very strict. Since companies have been announcing buybacks but not completing them, the regulator wants companies to make a firm commitment of the minimum number of shares that will be bought. They want companies to buy back at least 25 per cent of the buyback offer," said an official with Motilal Oswal Investment Advisors, which handles the Jindal Polyfilms offer.

"The minimum number of shares to be bought back (which was 400,000 equity shares mentioned in PA) stands revised to one million equity shares (the "minimum offer shares") and wherever the context applies, the minimum number of shares proposed to be bought back should be read accordingly, the company said in a corrigendum issued on Thursday.

In response to a query by Business Standard, a senior Sebi official said, "There is no new rule on buybacks."

Though there has been no amendment to rules, the regulator has been advising individual companies through office orders.

The corrigendum was issued to "amend certain information as advised by Securities and Exchange Board of India vide its letter bearing reference no.CFD/DCR/TO/SA/BB/OW/35462/11 dated November 21, 2011," Jindal Polyfilms said.

Jindal is not alone. In October, ECE Industries, a BK Birla Group firm, was told to increase the minimum offer size by half to three lakh shares.

Earlier, HEG, a Bhopal-based electrode maker, was asked to increase the minimum offer to 485,000 shares from 386,000 originally announced by the company.

Experts say the Sebi move was a step in the right direction. "There is a scope for manipulation in buy- backs. Sebi can make such interventions and insist on minimum shares to be bought back, " said Pavan K Vijay, MD, Corporate Professionals. He pointed out that companies typically argued that if enough shares were not tendered by investors, there was little they could do. " To check this, the regulator should ask companies to disclose the orders placed by them and price at which such orders were placed. If the market price is Rs 30 and the buyback price is Rs 50, why will the investor not tender his shares?" Vijay added.

In 2008-09, several companies announced share buybacks, but many did not acquire even a fraction of the size announced. According to a study by SMC Capitals in 2009, out of 23 companies that had announced buyback in 2008-09, when the stock prices crashed following the subprime crisis, ten did not even spell out the minimum number of shares they will buy back. This gave rise to complaints that these offers are just announcements aimed at boosting share prices artificially.