Sebi modifies norms for share buybacks

Market regulator Sebi on Tuesday modified norms for share buyback through thetender offer route under which companies will have to reserve 15 per cent ofthe offer for small shareholders.

"15 per cent of the number of securities which thecompany proposes to buy back (through tender offer)... shall be reserved forsmall shareholders," the Securities and Exchange Board of India (Buybackof Securities) (Amendment) Regulations 2012 said.

Small shareholder refers to a shareholder who holds sharesnot exceeding Rs two lakh of a listed company.

The buyback process through the tender offer route can becompleted within 41 days of the board approval.

As per the guidelines, a company would have to publishadvertisement in newspapers within 2 days after securing board approval for thebuyback and after 5 days it has to file the offer document with the Sebi.

"The offer for buyback shall remain open for 10 workingdays," Sebi said, adding that within 7 days the company would have to paythe buyback amount to the shareholders.

At present there are two ways by which a company can comeout with a buyback - open market and tender offer.

While in open market offer companies can buyback shares fromshareholders without knowing the buyer, under tender offer the company has towrite to every shareholder saying it is willing to buyback shares in proportionto the issue.

SMC Global head of research Jagannadham Thunuguntla saidprivate companies are unlikely to take the tender offer route to buyback as theprocess is tedious and time taking.

"The guideline is more theoritical. Companies arelikely to execute buyback through the open market route," he said.