The Hindu Business Line : SEBI may curb announcements in buyback period

Companies may face curbs on coming up with a `buy-back' offer for purchase of shares even as the market is still in the process of discovering a `fair price' for delisting of the shares of the company.

This was indicated by official sources privy to the development. The Securities and Exchange Board of India (SEBI) and the Department of Economic Affairs (DEA) in the Finance Ministry are considering incorporating some stipulation to this effect, into law when the existing guidelines - which are advisory in nature and thus lacking the requisite legal authority - are converted into regulations possessing greater force.

The move comes in the wake of a few companies using the tactic of passing Board resolutions prior to or during the `price discovery' for delisting of shares is still on. Official sources believe that such an exercise could unduly influence the shareholders while arriving at a decision on the price that they ought to demand for surrendering their shares in the context of a delisting exercise.

The resolution would talk of an `open offer' period during which the companies would buy back the shares surrendered provided that the price does not done exceed a certain amount. Being listed entities this information is put in the public domain by informing the stock exchanges.

Sources in SEBI and the Finance Ministry are of the view that such an announcement on price could be interpreted by shareholders as a signal coming from the company as to its preferred price for delisting.

It has been found that small shareholders in need of liquidity have succumbed to such pressure and have surrendered their shares at the price of the company's choice thus depriving themselves of a chance to secure a higher `discovered' price in the context of delisting. The guidelines stipulate that the promoters have to acquire the shares at the discovered price based on the offers received from the shareholders if they are desirous of taking the company off the stock exchange listing.

The price discovery process is somewhat analogous to the mechanism adopted in the case of initial public offerings (IPOs) through the book building route.

are not part of the package of measures `price discovery' process is promoters' offer to consolidate shareholding and go for delisting buy back are when the promoters offer to buy up shares considering restrictions on will plug the loopholes in the existing guidelines for delisting through the reverse book building (RBB) route when it converts them into regulations giving them legal sanctity so that violations could be penalised through legal measures.

According to the existing guidelines, the open offers through reverse book building allow the promoters to declare only a floor price without any maximum ceiling price.

However, in some recent instances the acquirers of companies have come out with formal open offer advertisements mentioning floor prices followed up by the company boards passing resolutions that the company would buy back only those shares for which the offer does not exceed a particular amount.

Sources said that the present guideline is silent on the issue prompting promoters to adopt this type of pressure tactics and the market regulator has taken note of it.

The SEBI and the DEA are working on some more minor details which might be misused by unscrupulous promoters at times of high market volatility such as withdrawing open offer after the closing date and a few more in order to protect the small shareholders' interest, sources said.