Market regulator the Securities and Exchange Board of India (Sebi) today modified norms for share buyback through the tender offer route under which companies will have to reserve 15% of the offer for small shareholders.
"Fifteen per cent of the number of securities which the company proposes to buy back (through tender offer)... Shall be reserved for small shareholders," the Securities and Exchange Board of India (Buyback of Securities) (Amendment) Regulations 2012 said.
Small shareholder refers to a shareholder who holds shares not exceeding Rs two lakh of a listed company.
The buyback process through the teneder offer route can be completed within 41 days of the board approval.
As per the guidelines, a company would have to publish advertisement in newspapers within 2 days after securing board approval for the buyback and after 5 days it has to file the offer document with the Sebi.
"The offer for buyback shall remain open for 10 working days," Sebi said, adding that within 7 days the company would have to pay the buyback amount to the shareholders.
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At present there are two ways by which a company can come out with a buyback -- open market and tender offer.
While in open market offer companies can buyback shares from shareholders without knowing the buyer, under tender offer the company has to write to every shareholder saying it is willing to buyback shares in proportion to the issue.
SMC Global head of research Jagannadham Thunuguntla said private companies are unlikey to take the tender offer route to buyback as the process is tedious and time taking.
"The guideline is more theoritical. Companies are likely to execute buyback through the open market route," he said.
The last company which came out with buyback by way of tender offer was Piramal Healthcare.