SEBI has revised the share buyback mechanism to bring clarity on the requirement to make public announcements. In fact, the regulatory changes have come as record number of buybacks were announced by companies in the past couple of years that surpassed the money raised via new issues.

Now buybacks cannot be made out of the proceeds of an earlier issue of the same kind of shares or the same kind of other specified securities. Buybacks are often made by companies from surplus cash or free reserves, which will now include securities premium account. Besides, clarity has been provided on timelines with respect to various requirements under buyback regulations. Explanation for ‘free reserves’ has been made in line with the Companies Act, 2013 and will be part of the new framework.

The revised norms came into effect from September 11.

The market regulator also said that credit rating agencies (CRAs) should not carry out any activity other than the rating of securities offered through public or rights issues. The CRAs have to hive off other activity into a separate entity within two years, SEBI’s news norms say.

Buyback norms were also reviewed to simplify language, remove inconsistencies and update references to the new Companies Act that came into force from April 2014.

SEBI said the definition of the buyback period and clarity on the need to make public announcement for the offer after declaration of postal ballot results has been provided in the amended regulations.

The buyback period has been defined as the time between the date of authorisation for buyback by a company’s board of directors and the date on which the payment is made to shareholders who have accepted the offer.

Also, a change was made regarding filing requirement and time for public announcements. Now, a company authorised to do buyback of shares will have to make a public announcement within two working days of its declaration. Two days will be from the “date of declaration of results of the postal ballot for special resolution/board of directors”. A company can undertake buyback of shares out of its free reserves and securities premium account, among others.

Markets regulator has also barred ‘fugitive economic offender’ from making an open offer or a competing offer for acquiring shares in a company. The move is expected to help in preventing such offender from taking control of a listed company. Besides, it has also relaxed initial public offering norms to allow companies to announce the price band two days before an offering. At present, the price band has to be announced five working days before the initial share sale opens for subscription.

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