SEBI raises mandatory limit for share buy-back to 50 per cent of offer

The Securities and Exchange Board of India (SEBI) has increased the mandatory minimum buy-back of shares by companies and their promoters to 50 per cent of the amount earmarked for the buy-back, as against the existing 25 per cent. In case the promoters fail to meet the 50 per cent buy-back offer, the amount in the escrow account would be forfeited subject to a maximum of 2.5 per cent of the total amount earmarked.

SEBI also reduced the maximum buy-back period to 6 months from 12 months.

As per SEBI regulations, companies or promoter groups buying back shares should create an escrow account towards security for performance with an amount equivalent to at least 25 per cent of the amount earmarked for buy-back.

The company should not raise further capital for a period of one year from the closure of the buy-back except in discharge of subsisting obligations as against the existing 6 months.

The company should also not make another buy-back offer within a period of one year from the date of closure of the preceding offer.

SEBI has rationalised the disclosure requirements for shares bought back on a cumulative basis on the web site of the company and the stock exchange to a daily basis instead of the current requirement of disclosure on a daily, fortnightly and monthly basis.

Companies can buy back 15 per cent or more of capital (paid-up capital and free reserves) only by way of tender offer. SEBI, however, has modified the procedure for buy-back of physical shares (odd-lot) to includes creation of separate window in the trading system for tendering the shares, requirement of PAN / Aadhaar for verification, etc.

SEBI also has permitted companies to extinguish shares bought back during the month within 15 days of the succeeding month subject to the last extinguishment and within seven days of the completion of the offer.

The promoters of the company should not execute any transaction, either on-market or off-market, during the buyback period.

In order to provide a wider investor base and greater fund raising capabilities to start-ups and small and medium enterprises, SEBI also eased exit norms for informed investors like angel investors, VCFs and PEs.

The SEBI board also approved a proposal to permit listing of start-ups and SMEs in Institutional Trading platform (ITP) without having to make an IPO. Such companies eligible to be listed on the 'Institutional Trading Platform' will be accessible for investment to the informed investors only. SEBI has raised the minimum amount for trading or investment on the ITP to Rs10 lakh.

Companies listed on the ITP, however, will not be permitted to raise capital from the public though they can continue to make private placements.

Listing on ITP by start-ups and SMEs is expected to offer promoters better chances to find alternate buyers than if they search using their own network in the investment community. SEBI proposes to issue standardised norms of entry for companies, eligibility criteria, continuous disclosure requirements, simplified exit rules and corporate governance norms.

The SEBI board also accepted the recommendations of the committee on rationalisation of investment routes and monitoring of foreign portfolio investments, which inter alia proposed simplified and uniform entry norms for foreign investors by merging existing FIIs, sub accounts and qualified foreign investors (QFIs) into a new investor class to be termed as ''Foreign Portfolio Investors'' (FPIs).

The committee had also suggested doing away with the requirement  of prior direct registration of FIIs and sub accounts with SEBI to make the procedure much simpler. Instead, DDPs authorised by SEBI would register FPIs on behalf of SEBI subject to compliance with KYC requirements.