SEBI proposes tighter norms for share buyback

The Securities and Exchange Board of India (SEBI) has proposal to tighten share buyback rules for companies, including fixing a minimum that must be bought under an offer and the time frame for completion of the buy-back.

SEBI's draft proposals, unveiled on Wednesday, prescribes a minimum 50 per cent buy-back on any offer, against the current 25 per cent and a maximum three months to achieve the 50 per cent buy-back target.

The market regulator has prescribed that the companies complete the buy-back in three months rather than waiting for the full 12 month period prescribed as the maximum period to complete a buy-back in the Companies Act, 1956.

SEBI also proposed that companies be barred from raising capital for two years after purchasing its own shares.

The regulator said the measures are meant to crack down on potential abuses as some companies have announced buy-backs only to benefit from the subsequent gains in their share price.

SEBI has proposed a broad framework for buy-back through open market purchase in the backdrop of the observations of the Securities Appellate Tribunal (SAT) in its 26 September 2008 order in the issue of Sasken Communications Limited that there were several instances of companies not buying a single share or buying negligible quantity after buy-back announcement.