Share Repurchase (Buyback) Regulations - India

 

oThis was not permitted under Indian law until 1999.

o

 In October 1998, the law was amended that introduced 4 types of buy backs

 

 

common provisions applicable to all companies:

 

 

-

 

-         Provisions shall apply to all types including ESOP shares and other securities as may be specified from time to time

-         Buy back may be approved by a special regulation in a general meeting

-         Buy back has to be financed out of free reserves or securities account or form proceeds of earlier issue of dissimilar share

-

-A company may buy back by either of the following offers:

-From existing shareholders on a proportionate basis through private offers

-By purchasing the securities issued to employees pursuant to a scheme of stock option or sweat equity

   

BUY BACK BY LISTED COMPANIES

    A company can buy back securities under the methods below:

1 Fixed Price Tender Offer:

            Shareholders on record as of a record date are invited to tender their shares for re-purchase by the company at a fixed price. This is a simpler method but may not realize the best price for shareholders

 

2 Book Building  Method

-Actually a REVERSE book building process

-Shareholders are invited to put in bids for re-purchase of their shares

-Maximum price of the bid is specified in the notice

-Once the bids are taken, the company fixes the buy back price based on the highest bid

-Bidder who bid lower price is also eligible to receive the highest price

-Better price realization for the bidder.

3. Open Market Purchase through Stock Exchange Mechanism

-As in the case of reverse book building, the board resolution specifies the maximum price at which the securities shall be bought back by companies

-Company buys back shares directly from secondary market using trading system and placing buy orders in its own name

-Varying prices are encountered during such a buy back based on prevailing market price

-A drawback of the option is that promoters can not sell their own shares

-Also if the company does not enjoy free float, it may not be able to get sufficient quantity for buy back

4 Other Requirements

Investment Banking Perspectives in Share Buyback

PROCESS OF MAKING A BUY BACK

-Under SEBI buy back regulations, it is mandatory to engage a merchant banker to prepare a L of O (Letter of Offer) and manage buy back offer

-Pricing mechanism fixed by the board of companies

-Requirement of an escrow account to be opened under the Tender Offer and the book building methods to the extent specified under regulations

-The offer shall not open before 7 days and not after 30 days from the specified date and shall be kept open for a minimum of 15 days and a maximum of 30 days.

 

References

"Accounting and Reporting for Buyback in India", Chartered Accountant, May 2004. 

 http://www.icai.org/resource_file/11222p1180-88.pdf

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In the five years to March 2010, 93 companies initiated buybacks picking up shares worth Rs 7,700 crore, according to Prime Data.

Source:
http://www.expressindia.com/latest-news/Buybacks-back-in-vogue-as-share-prices-take-a-tumble/749144/

http://knol.google.com/k/narayana-rao/share-repurchase-buyback-india/ 2utb2lsm2k7a/ 537