Sebi looks to abolish buybacks via bourses – Times of India

MUMBAI: Late on Wednesday, markets regulator Sebi proposed some sweeping changes to the guidelines that regulate buyback of shares by companies, including reducing the time taken to complete the process from 180 days now to 66 days by April 2023 and 22 days by April 2024. Subsequently it also wants to do away with the open market buyback process completely.
The regulator is also proposing to enhance the buyback limit for companies to 40% of the paid-up equity, plus free reserves of a company, from the 25% currently. Sebi is also proposing that debt-free companies should be allowed to undertake up to two buybacks in a single financial year. Currently, no company can launch more than one buyback in any 12-month period.
These, and some other proposals relating to companies’ buybacks, are part of a consultation paper floated by the regulator on Wednesday. General public can send in their comments on these proposals to Sebi till December 1.
In the consultation paper, Sebi said that current buyback regulations provide “a time period of six months from the date of opening of the offer for the buyback offer to be closed. This may result in artificial demand being created for the relevant company’s shares during such an extended period of time and trading of shares occurring at an exaggerated price. Allowing for an extended buyback period thus prevents efficient price discovery.”
To correct this anomaly, Sebi is planning to move to a shorter time period.
Sebi also pointed out that those shareholders who tender their shares in a buyback enjoy tax benefits. The tax burden is borne by the company and, hence, those shareholders who stay with the company and do not tender their shares. To correct this anomaly, Sebi is proposing to completely do away with a buyback process through the exchange platform that currently allows tax benefits to the exiting shareholders.

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