Millennium Post

On the anvil: Stricter Sebi rules for buyback & preferential share issues

With an aim to safeguard the interest of public shareholders, Sebi plans to streamline the procedures for buyback offers made by promoters and the issuance of shares on preferential basis.

For the buyback offers made by promoters of listed companies, appropriate measures need to be taken for keeping under check non-serious proposals made to the minority shareholders, while the time frame for such offers also need to be shortened, a senior official said.
Besides, Sebi is amending the norms about preferential allotment of shares by making it mandatory to disclose source of funds for such purchases to ensure that shares are not being acquired by promoters through front entities.

The regulator might also make it mandatory that payment for such share allotments are made only from the own bank accounts of the buyers. Sebi is also considering making it compulsory to carry out such allotments through demat accounts, a move that would check flow of illicit funds.
The steps required to be taken on these matters may be considered at a Sebi board meeting scheduled for Tuesday.

Regarding buyback proposals, the market regulator is planning to make it mandatory for companies to buyback a minimum of 50 per cent shares of the total targeted amount, failing which penal actions might be taken against them.In the past three years, there have been 75 buyback cases through open market purchases, where companies could meet only 49.91 per cent of their buyback targets.To ensure that only serious companies launch buybacks, Sebi might make it compulsory for companies to keep 25 per cent of the proposed repurchase amount in an escrow account.
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