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To safeguard the interest of public shareholders, Sebi's board today approved making it mandatory for the companies to buyback at least 50% of their repurchase offers.
Besides, the companies would have to complete their buyback offers within six months, from 12 months currently, while those not being able to meet the target would be barred from launching another offer for a period of one year.
The measures, which also include the companies being asked to keep 25% of the proposed buyback offer amount in an escrow account, are aimed at averting the companies from making non-serious offers that could wrongly influence the share prices.
In another major decision, Sebi board also approved measures for making transparent the share allotment to certain investors on preferential basis and said that the payments for such issuances would need to be made from the own bank accounts of such entities.
There have been concerns that promoters might use the preferential allotment route through front entities and thus adversely impact the interest of public shareholders.
Sebi also said that it would be necessary to do such allotments through demat accounts, a move that would check flow of illicit funds. The identity of ultimate beneficial owner of these shares would also need to be disclosed.
Sebi said that the steps have been taken as part of its "constant endeavour to align regulatory requirements with the changing market realities as well as to enhance efficiency of the buy-back process".
Regarding buyback proposals, the market regulator said it would be mandatory for companies to buyback a minimum of 50% shares of the total targeted amount.
In case companies falter on some account there would be a penalty and that could be of a maximum 2.5% on the funds lying in this escrow account.
In the past three years, there have been 75 buyback cases through open market purchases, where most companies could meet only 49.91% of their buyback targets.
The companies would also be required to make public the number of shares purchased and the amount utilised on a daily basis.
The companies that fail to meet the buyback target would not be allowed to come up with another offer for one year.
In a bid to encourage buybacks using tender method, where larger amount of surplus funds are involved, Sebi said that companies are required to buyback at least 15% of targeted amount.
At present there are two routes by which a company can come out with a buyback - open market and tender offer.
In an open market offer, companies can buyback shares from shareholders without knowing the buyer, while tender offer involves the company writing to its shareholders individually to know their willingness for sale of shares in the buyback.
Under the tender offer, shares are bought back at a fixed price, which is generally at a premium to the market price.
The regulator said promoters of the company can not execute any transaction, either on-market or off-market, during the buy-back period.
Companies can "extinguish" shares bought back during the month, on or before fifteenth day of the succeeding month. In the last month of offer period, repurchased shares need to be extinguished within seven days of the completion of the offer.
Sebi has modified the procedure for buy-back of physical shares which includes creation of separate window in the trading system for tendering the shares, requirement of PAN/Aadhaar for verification.
