Sebi plans new buyback rules, maximum limit likely to be capped at 25%

Markets regulator Sebi is considering to come out with new norms on share buyback programme, under which maximum limit for share repurchase will be 25 per cent of the company's paid-up capital and other reserves.

The company may buy back its shares and other securities from the existing security holders on a proportionate basis through the tender offer; open market via - book building process and stock exchange - and odd-lot holders, senior officials said.

This will be applicable provided that no offer of buyback for 15 per cent of the paid-up capital and free reserves of the company will be made from the open markets.

The proposal will be discussed at the board meeting of Securities and Exchange Board of India (Sebi) this week, they added.

The regulator plans to come out with a consultation paper on the share and other securities buyback programme and seek public comments on the same. The final regulations will be put in place after taking views of all the stakeholders.

Under the proposal, the maximum limit of any buyback would be 25 per cent or less of the aggregate of paid up capital and free reserves of the company.

Besides, the ratio of the aggregate secured and unsecured debts owed by the company after buyback may not be more than twice the paid-up capital and free reserves.

According to the proposal, the company would not buy back its shares to delist its scrips, besides, the firm would not repurchase its scrips through negotiated deals, whether on or off the stock exchange through spot transactions or through any private arrangement.

"A company shall not make any offer of buyback within a period of one year reckoned from the date of closure of the preceding offer of buyback," as per the proposal.

The company may not be allowed to purchase its own shares through any subsidiary company and any investment company.

Further, the firm would not directly or indirectly purchase its own shares if a default is made by it. However, such buyback would not be prohibited if the default is remedied and period of three years has lapsed after such default ceased to subsist.

If a company completes buyback of its shares, it will not make a further issue of the same kind of scrips including allotment of new shares within six months months except by way of bonus issue or in the discharge of subsisting obligations such as warrants, stock option schemes and conversion of preference shares or debentures into equity shares.

The companies will have to complete their buyback offers within a period of one year of passing a special resolution by the general meeting or the special resolution passed by the board of directors.

Besides, Sebi is looking to amend takeover regulation with regard to upward revision of the open offer price.