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SEBI okays buyback draft: bourse mode disallowed, only listed securities covered, no say on pricing

The Securities and Exchange Board of India today approved the draft regulations governing buyback of shares by promoters of companies, with the ambit of regulations covering only listed securities.

SEBI Chairman D R Mehta said that promoters will not be allowed to participate in the buyback process through the stock exchange mode.

''This measure is precautionary in nature,'' said Mehta.

Unlisted securities issued through private placement or by any other means will not be covered by these regulations, meaning that the regulations only govern shares. ''The government may notify more securities later, but that's unlikely till the ordinance issued by the Centre on October 31 becomes a law,'' averred the SEBI chairman.

Buyback has been permitted through the tender offer mode from existing shareholders on a proportionate basis and from odd-lot holders. Similarly, the book-building mode, which is a modification of the Dutch auction method and purchases through stock exchanges has been allowed for open market transactions.

For purchases made through bourses, the details of purchases made in the buyback scheme of the company will have to be made available to the stock exchanges on a daily basis, which in turn shall make the information known to the general public regularly.

Companies will be required to disclose the pre- and post-buyback holdings of promoters.

SEBI at no stage will be involved in the pricing process of securities, which has been left completely to the discretion of promoters and shareholders. Also, merchant bankers have been allowed in every buyback deal to ensure compliance with disclosure norms by companies and that the special resolution approved by the shareholders is properly passed.

Merchant bankers will have to give a 'due diligence' certificate. Buyback through negotiated deals, spot transactions or private arrangements will not be allowed.

Companies making an offer for buyback will have to open an escrow account on the same lines as takeover regulations.

According to Mehta, the draft regulations will be notified in the official gazette by the end of this week.

The buyback offer has to be completed within 30 days. Verification of shares received in buyback has to be done in 15 days of the closure of offer. Payment for accepted securities is to be made within seven days of the completion of verification and the shares have to be extinguished and physically destroyed within seven days of the date of payment.

The extinguishment certificate has to be filed within seven days of the destruction of the certificates. Mehta said that the SEBI consulted over 50 professionals -- chartered accountants, stock exchange officials, merchant bankers, registrars, lawyers and company secretaries before arriving at a final opinion on the buyback regulations.

The SEBI board also broadly accepted the recommendations of the Justice D R Dhanuka Committee. The SEBI agreed to recommendations relating to strengthening of its regulatory powers. The committee has also recommended consolidation of the Securities Contracts (Regulation) Act 1956, the SEBI Act 1992 and the Depository Act.

The market regulator will now send the report to the Central government for appropriate action.

On collective investment schemes, the board discussed the order passed by the Delhi high court on October 29, wherein the court directed that all plantation companies, agro companies and companies running collective investment schemes have to be approved by the SEBI and stipulated other norms for these entities.

The board approved the proposal for amending the SEBI (brokers and sub-brokers) Regulations 1992 to provide that if a broker failed to comply with the regulations, he/she should be liable to pay interest of 15 per cent per month of delay.

UNI

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