Securities and Exchange Board of India (Buy Back of Securities) Regulations, 1998.
These regulations shall be applicable to buy-back of
- Shares or
- Other specified securities of a Company listed on a stock exchange.
However, a company listed on a stock exchange shall not buy-back its shares or other specified securities so as to delist its shares or other specified securities from the stock exchange.
A company shall not buy-back its shares or specified securities from any persons through negotiated deals
- Whether on or of the stock exchange or
- Through spot transactions or
- Through private arrangement
A company shall not make any offer of buy-back within period of one year reckoned from date of closure of preceding offer of buy-back.
A company may buy-back its shares or other specified securities from its existing shareholders on a proportionate basis. A company may offer to buy back any number of shares from the shareholders (without in any way contravening delisting norms).Provided atleast 15% of the number of securities which company proposes to buy-back shall be reserved for small shareholders.
Filing of offer document
The company which has been authorised by a special resolution or a resolution passed by the Board of Directors at its meeting shall within two working days from date of resolution make a public announcement in One English national daily, One Hindi national daily and One Regional national daily.
- The copy of Public announcement along with the soft copy, shall be submitted to board simultaneously through merchant banker.
- The company shall within five working days of public announcement file with board draft letter of offer along with soft copy.
- Board may give its comment on draft letter of offer within seven working days of the receipt of the draft letter of offer.
- Company shall announce a record date for purpose of determining the entitlements and the names of the security holders.
- The letter of offer along with tender form shall be dispatched to the security holder within five working days from the receipt of communication of comments from the Board.
- Date of opening of offer shall not be later than five working days from the date of dispatch of offer.
- The offer for buy back shall remain open to the members for a period of ten working days.
The share propose to be bought back shall be divided into two categories:-
- Reserved category for small shareholders.
- General category for other shareholders.
Shares offered by each class of shareholders to the extent of their entitlement should be accepted in full. Balance shares remaining to be acquired in reserve category and general category should be first utilized to acquire excess shares offered by respective class of shareholders proportionately. Thereafter, if there is any balance left in either category with no corresponding offer in that category, such balance can be used to buy shares offered in that category.
Company shall on or before the opening of offer deposit in an Escrow account such sum as specified below:-
- If the consideration payable does not exceed Rs.100cr – 25 % of the consideration payable
- If the consideration payable exceeds Rs. 100cr – 25% upto Rs 100cr and 10% thereafter
Escrow Account shall consist of
- Cash deposited with a schedule commercial bank, or
- Bank guarantee in favour of merchant banker, or
- deposit of acceptable securities with appropriate margin, with the merchant banker, or
- A combination of above
The Company shall open special Bank account with banker to an Issue registered with Board and deposit therein together with (90%) the amount lying in the Escrow Account make-up the entire sum due and payable as consideration for buy back. The Company should complete verification of offers received and make a payment within 7 working days of the closure of the offer.
Company shall extinguish and physically destroy the security certificates so bought back in presence of Registrar to an issue or Merchant Banker and Statutory Auditor within fifteen days of the date of acceptance of the share or other specified securities.
Provided that the company shall ensure that all the securities bought – back are extinguished within seven days of the last date of completion of buy back.
The provisions pertaining to buy back through tender offer as specified above shall be applicable to odd lot shares or other specified securities.
The buy-back of shares from open market may be in any one of following methods:
- Through Stock Exchange
- Book Building Process
The company shall ensure that at least fifty per cent of the amount earmarked for buy-back is utilised for buying back shares or other specified securities.
BUY-BACK THROUGH STOCK EXCHANGE
- The resolution passed for Buy Back of shares shall specify the maximum price at which the buy-back shall be made.
- The buy-back of the shares shall not be made from the promoters or persons in control of the company.
- The public announcement shall be made within seven days from date of passing the resolution of buy back.
- A copy of public announcement to be filled with board simultaneously with the issue of public announcement.
- The buy-back shall be made only on stock exchange having nationwide trading terminals.
- The Buy Back shall be made only through order matching mechanism except ‘all or none’
- The company and merchant banker should submit information regarding shares bought back, to stock exchange on a daily basis and stock exchange shall upload the same on its official website immediately.
- The company shall upload information regarding shares and specified securities bought back on its website on daily basis.
- The buy-back offer shall open within seven working days from date of public announcement and shall close within six months from date of opening of the offer.
BUY BACK OF PHYSICAL SHARES OR OTHER SPECIFIED SECURITIES
- Stock Exchange shall create a separate window for buy-back of physical shares or specified securities which will remain open during Buy Back period.
- The company shall Buy Back its shares from eligible shares holder holding shares in Physical forms through separate window specified above. only after verification of the identity proof and address proof by the broker.
- The price at which such shares or specified securities are bought back shall be the volume weighted average price of the share or specified securities bought back, other than in physical form, during the calendar week in which such shares or specified securities were received by the broker.
In case no shares or other specified securities were bought back in the normal market during calendar week, the preceding week when the company has last bought back the shares or other specified securities may be considered
- The company shall be required to deposit 25% of the amount earmarked for buy back of shares into Escrow account, before the opening of offer.
- In case of the failure to purchase the minimum prescribed 50% of the offer size, the entire amount in the Escrow account will be forfeited, subject to maximum of 2.5% of the amount earmarked for the share buy-back.
Extinguishment of Certificates:
- The Company shall complete the verification of acceptance within 15 days of payout.
- The Company shall extinguish and physically destroy the security certificates so bought back on or before 15 days of the succeeding month
Provided the Company will ensure that all securities Bough Back are extinguished within 7 days from the last date of completion of offer.
BUY-BACK THROUGH BOOK BUILDING
- The special resolution for buy back shall specify the maximum price at which the buy-back shall be made.
- The Company shall appoint Merchant Banker and make Public announcement at least 7 days prior to the commencement of buy back.
- The deposit in the escrow account shall be made before the date of the public announcement (PA).
- A copy of public announcement shall be filled with Board within two days of PA.
- PA shall include detailed methodology of Book Building process.
- Book Building shall be made through an electronically linked transparent facility.
- The offer for buy-back shall remain open for a period not less than fifteen days and not exceeding thirty days.
- Merchant Banker and the company shall determine Buy Back price based on acceptance received.
RECENT TREND IN BUYBACK:
For the Financial year 2017-2018, 41 companies have completed their share buy back offers worth Rs. 49,067 crore of this, buyback offers by seven IT services companies accounted for Rs 44,984 crore or 92 percent. This includes the Rs 16,000-crore buyback by TCS and Rs 13,000 crore by Infosys. Close to Rs 34,000 crore of buyback offers were announced by companies last year. What has made buy back an attractive deal is the tax implications levied on the dividend.