Securities and Exchange Board of India (‘SEBI’) vide its notification dt: February 7, 2023 has brought in SEBI (Buyback of Securities) (Amendment) Regulations, 2023. This is effective from thirtieth day of notification of amendment in official gazette i.e. effective of amendment is March 9, 2023.
A. Calculating maximum limit of buyback: For calculating maximum limit of buyback, standalone or consolidated financial statements, whichever sets out lower amount would be used. This methodology of determining quantum of buyback is brought in by SEBI throughout buyback regulations.
B. Methods of buyback:
- Method of buyback through odd lot is withdrawn. All consequent provisions relating to that are also withdrawn by SEBI.
- SEBI has approved systematic phasing out of open market buybacks. Open market buybacks will be completely phased out from April 1, 2025. Till then open market through stock exchanges, based on the standalone or consolidated financial statements of the company, whichever sets out a lower amount, shall be less than:—
- 15% of the paid up capital and free reserves of the company till March 31, 2023
- 10% of the paid up capital and free reserves of the company till March 31, 2024
- 5% of the paid up capital and free reserves of the company till March 31, 2025
Other amendments – Open market buy backs:-
- SEBI has now prescribed that at least 40% of amount earmarked for buyback be utilized within initial half of financial year. Also, it has stated that min. 75% of amount earmarked for open market buyback shall be utilized as against 50% earlier.
- SEBI has also stated that a separate window shall be created by concerned stock exchange for open market buyback. SEBI has further tried to streamline buyback through stock exchanges by putting restrictions on placement of bids, price and volume of trade.
- Buyback through stock exchange route would now be restricted only to companies whose shares are frequently traded. Also, SEBI has introduced the definition of frequently traded shares.
- SEBI has also curtailed timelines for period of tendering for open market buybacks: The buy-back offer shall open not later than four working days from the record date and shall close:-
- within six months, if the buy-back offer is opened on or before March 31, 2023
- within 66 working days, if the buy-back offer is opened on or after April 1, 2023 and till March 31, 2024
- within 22 working days, if the buy-back offer is opened on or after April 1, 2024 and till March 31, 2025
C. General compliance and filing requirements for buy-back: Consent of lenders necessary for buyback in case there is breach of any covenant with such lender(s). Also, specific mention of consent of lender is mandatorily required to be given in letter of offer.
D. Time limit for filing of copy of resolution with SEBI and Exchanges: Seven working days provided as against seven days earlier for filing of copy of resolution passed at general meeting under section 68(2) of Companies Act, 2013 with SEBI and Stock exchanges. SEBI has accepted terminology of ‘working days’ in buyback regulations as against ‘days’ used earlier. So listed entities would effectively get more time for compliance or disclosure related provisions.
E. Buyback through tender offer route –
- Change in buyback price: SEBI allows listed entities doing buyback through tender offer route to increase the maximum buyback price and decrease the number of securities proposed to be bought back till one working day prior to record date such that there is no change in aggregate size of buyback. Also, SEBI has stated that all filings pertaining to buybacks with SEBI shall be in electronic mode under digital signature of Company Secretary or any person authorized by Board of Directors of the Company
- Filing of public announcement with SEBI: Listed entity shall, simultaneously with publishing public announcement as per Regulation 7(i) of SEBI (Buyback of Securities) Regulations, 2018 [i.e. publishing of public announcement in newspapers] file a copy of the public announcement in electronic mode, with the Board and the stock exchanges on which its shares or other specified securities are listed.
- Requirement of filing a draft letter of offer with SEBI and subsequent requirement of SEBI providing its comments on the same is done away with
- Merchant Bankers, who are not associates of the company, to certify compliance with the Buy-back Regulations in the letter of offer.
- Letter of offer to be dispatched through electronic mode in accordance with the provisions of the Companies Act, within 2 working days from the record date and on receipt of a request from any shareholder to receive a copy of the letter of offer in physical form, the same shall be required to be provided. Disclosures of the same (i.e. letter of offer is sent through electronic mode) have to be mandatorily made in the public announcement.
- The date of opening of the offer shall not be later than four working days from the record date.
F. Other Matters (relevant for all the routes of buyback) –
- Escrow Account: Company shall be required to open an escrow account, within two working days of the public announcement.
- The escrow account shall consist of
- cash including bank deposits, deposited with any scheduled commercial bank, or;
- government securities, or;
- units of mutual funds invested in gilt funds and overnight schemes, or;
- bank guarantee issued in favour of the merchant banker by any scheduled commercial bank, or;
- deposit of frequently traded and freely transferable equity shares or other freely transferable securities, or;
- a combination of above.
The securities mentioned above shall be subject to appropriate margin as specified by SEBI.
G. Post buyback compliance: Companies will undertake extinguishment of share certificates and make other closure compliances through the secretarial auditor.
H. Dispensing with the need of submitting physical documents and instead permitting submission of soft-copies to SEBI- To promote ease of doing business and leverage the advancement in technology, it is proposed that the listed entities shall submit to SEBI, all the relevant documents as specified in the Regulations, digitally signed by the company secretary of the company or the person authorized by the board of the company, undertaking buy-back.
I. Rationalizing certain requirements in case of an escrow account across all routes of Buy-back- Where part of an escrow account is in the form other than cash, making the requirement of depositing cash of at least 2.5% of the total amount earmarked for buy-back uniform across all applicable routes of buy-back, viz: through open market and through the tender offer, and also extending the validity of bank guarantee till all the obligations are completed or 30 days from expiry of buy-back period, whichever is later.
J. SEBI has now harmonized the requirement of payment of fees to SEBI on the date of public announcement across all available routes under buy-back as requirement of filing of draft letter of offer in case of buyback through tender offer route and in case of open market buyback at the time of filing copy of public announcement is dispensed with.
K. Revised mechanism for open market buybacks through book building process is notified.
L.Payment of consideration to the shareholders- The payment of consideration shall be completed within five working days after the closure of the tendering period.