Companies coming out with buybacks shouldn’t be allowed to raise capital for two years, the Securities and Exchange Board of India (Sebi) has proposed.
This paves the way for roll-back of a change made in 2001. Under the Companies Act 1956, companies which had initiated buybacks were prohibited from coming out with additional capital raising plans for two years, which was brought down to six months in 2001.
The regulator has also proposed reducing the buyback period to three months from 12, according to a discussion paper put up on the Sebi website.
Dara Kalyaniwala, vice-president - investment banking, Prabhudas Lilladher feels the three-month timeline would make it difficult for players to complete the minimum required buyback in scrips with low volumes. “Companies may miss out on acquisitions or attractive investments they come across following a buyback,” he said.
But S P Tulsian, an independent analyst, said inability to raise funds from the capital market need not be a handicap. “The company needs to keep some buffer and plan well in advance about its capital needs. If a company is cash rich, it can always raise debt.”
Sebi has proposed that companies buy back at least 50% of the quantity of the announced buyback and put 25% of the maximum amount proposed for buyback in an escrow account.
Sebi has also asked companies to buy at least 15% of the shares through a tender offer method – where the company offers a premium to the market price – rather than from the market, where the buyback price “could be significantly lower than the announced price.” Sebi has invited comments till January 31.