SEBI Tightens Buyback Norms

Promoters had been using the buyback route ruthlessly to artificially jack up the prices as earlier their commitment for buyback was bare minimum when they announced buyback at high valuation as compared to the prevalent market price.

Now SEBI true to acting like a watch dog has decided to pull a curtain on these nefarious activities of the promoters with new set of guidelines for buyback offers.

• It has mandated companies to purchase at least 50% of the offer size, failing which they will have to forfeit 2.5% of the total amount earmarked.
• Companies will be required to put 25% of the amount earmarked for buyback in an escrow account.
• Buy back has to completed with in six months from the current 12-month period.
• Companies going in for buyback will not be permitted to raise further capital for one year from the closure of the buyback, except to discharge of subsisting obligations.
• Further, another buy-back offer cannot be made within one year from the date of closure of the preceding offer.
• Promoters are also barred from executing on-market or off-market transactions during the buy-back period.

These measures by SEBI to boost investor confidence are welcome step and we whole heartedly applaud the said efforts as tightening of these norms means that only genuine buybacks will now only come in the market and probably this is the reason that Crompton Greaves buyback scheme has been withdrawn as they had issued buyback at Rs 125 price but prevalent price was Rs 88. Please check how a buyback program is executed as this insight will help you understand the whole game in a better way.