In my Demystifying Share Buybacks article, I had mentioned new reforms expected for share buybacks. SEBI has now fixed at least two of the problems I mentioned. From the SEBI meeting notes:
- A company has to buyback at least 50% of what they say they’ll buy back. As I’d noted, stock buybacks have been proposed at huge numbers but promoters never bothered to actually buy stock, creating false expectations.
- The buy-back must be finished in 6 months.
- Companies must put 25% of the money required in an escrow account. SEBI will take 2.5% of the entire issue as a fine if the 50% buyback is not achieved.
- No more raising further capital for 1 year, but existing obligations (like convertible debt) can be honoured. No further buybacks for a year either.
- Buyback disclosures to be on a daily basis, comprehensively. Currently they need to report daily, fortnightly and monthly.
- Anything more than 15% of capital needs a tender offer, not a market buyback.
- Promoters can’t buy or sell during the buyback.
This helps streamline the buyback process and reduces abuse.