The Securities and Exchange Board of India (SEBI) has tightened share buyback norms to make the process more credible. SEBI has made it mandatory for companies to buy back at least 50 per cent of the proposed offer size; up from 25 percent required currently and to complete the process within six months. The capital market regulator has also said that the company will have to keep 25 percent of the identified funds in an escrow account and that there will be a one-year cooling-off period between two buybacks and companies will not be allowed to raise funds during that period.
The regulator’s decision to revise the buyback guidelines comes on the heels of need to regulate the quantity, pricing and the periodicity aspects of the buyback offers in the past. Share buyback process involves a company repurchasing its own outstanding shares in a bid to reduce the total shares in the market, which usually boosts the share price as the earnings per share go up. However, SEBI noticed that firms used the tool to artificially raise the stock price and mostly dishonored the offer. The new SEBI’s norms are expected to keep buyback offers at bay.
SEBI has also simplified the foreign investment rules to revive capital inflows into the country. It approved the creation of single category of overseas investors called the Foreign Portfolio Investor (FPI), which would include foreign institutional investors as well as qualified foreign investors. As per the new norms, FPIs’ stake in the company should not be more than 10 percent and purchase above this limit will be regulated under the foreign direct investment rules. Recently, the foreign institutional investors (FIIs) have pulled out Rs 10,000 crore only in the last 11 trading sessions on worries that the US Fed will stop its quantitative easing programme.
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