The proposals from SEBI are primarily aimed at ensuring that only serious companies launch a share buyback programme, which in turn would help in protecting the interest of investors
Mumbai: Market regulator Securities and Exchange Board of India has proposed significant changes to existing framework for buyback of shares by companies from open market, that require the process be to complete in three months and minimum repurchase to be 50% of the target, reports PTI.
The proposals are primarily aimed at ensuring that only serious companies launch a share buyback programme, which in turn would help in protecting the interest of investors.
The market regulator has proposed to make it mandatory for companies to buy back a minimum of 50% shares of the total targeted amount while the repurchase programme should be completed in three months from the launch date.
At present, the period of share buyback is 12 months.
"... it is proposed that companies complete the buy back in three months. To ensure that only serious companies launch the buyback programme, it is further proposed that these companies be mandated to put 25% of the maximum amount proposed for buy back in an escrow account," SEBI said in a discussion paper.
SEBI has sought comments on the paper titled 'Proposed modifications to the existing framework for buy back through open market purchase' till 31st January.
Making the norms stringent, the regulator has suggested that the companies, which are unable to buyback all the targeted shares (or proposed amount), should be barred from coming up with another repurchase offer for one year.
"... listed companies coming out with buyback programs may not be allowed to raise further capital for a period of two years," SEBI said.
Another suggestion is that companies should disclose the number of shares purchased and the amount utilised to the exchanges on a daily basis.
Citing buyback offer trends, SEBI said despite the intention disclosed by companies to their shareholders at the time of making buyback offer, the buyback offer is not used as an opportunity for enhancing the book value of the shares of the company.
"It has been observed that in 75 buyback cases through open market purchases, which closed during the last three financial years (from 1 April 2007 to 31 March 2010), an average of 49.91% of the maximum offer size (as disclosed in public announcement to shareholders) was utilised by the companies for the buy back," the paper said.
Further, SEBI said in many instances, companies took shareholders/board approval for buybacks but did not take a "single step to buy the shares".
Generally, buybacks are intended to return surplus cash to the shareholders, to provide support for share price during periods of temporary weakness and to increase the underlying share value.
SEBI has said share issuance on account of Employee Stock Option schemes need to be allowed during buyback period, provided that the scrips are "not allotted to directors and key managerial personnel of the company".
According to the market regulator, it would be desirable to encourage buybacks using tender method when larger amount of surplus funds are involved.
"It is proposed that buy-back of 15% or more of (paid up capital+free reserves) must be only by way of a tender offer method," the regulator said.
Through tender offer method, all shares are bought back at a fixed price which is generally at a premium to the market price. "Thus, the tender offer method of buy-back is more equitable way of distributing surplus funds with the companies to its shareholders," SEBI said.
In terms of disclosures, SEBI has said companies should reveal the total number of shares proposed to be bought back in the offer.
"Cumulative number of shares bought back till the end of previous reporting period and amount utilised for the same," should be reported.
Also, companies have to disclose the number of shares yet to be bought back and amount yet to be utilised.
Regarding physical shares, they have to tender the scrips at a "separate window in trading system".
"This window will remain open only during the buyback programme... Shareholders holding 500 shares or less in physical form will be eligible to tender their shares in this window," the discussion paper said.
Meanwhile, companies can "extinguish/destroy" shares bought back during the month, on or before fifteenth day of the succeeding month while in the last month, repurchased shares have to be extinguished within seven days of the completion of the offer.
The manipulation in shares of Murli Industries was initially discovered by the I-T Department, which was referred to SEBI. I-T Department had found that 10 firms incorporated by MIL were "dummy" companies and they had cornered a large part of the MIL shareholding
Mumbai: Market regulator Securities and Exchange Board of India (SEBI) has imposed a total penalty of Rs17 lakh on five entities for not providing information regarding a probe into alleged manipulation in trading of shares of Murli Industries Ltd (MIL), reports PTI.
The information was sought by the Investigation Authority (IA) of the market regulator.
In five separate orders, SEBI has slapped a fine of Rs2 lakh on Dhanesh Capital Services, Rs4 lakh on Fortune Commodeal and Rs5 lakh on Namokar Consultants. Besides, a penalty of Rs3 lakh each has been imposed on two entities -- Sunayana Commercial and Sanskar Trade-Link.
SEBI, on various occasions, had served summons to the five entities seeking information related to alleged manipulation in shares of MIL.
The market regulator, in its orders on 31st December, observed that by not submitting complete details despite having the same, "appears to be a deliberate action/strategy on the part of the noticee (five entities) to not cooperate with the regulatory mechanism".
The manipulation in MIL shares was initially discovered by the Income Tax Department, which was referred to SEBI.
IT Department had found that 10 firms incorporated by MIL were "dummy" companies and they had cornered a large part of the MIL shareholding.
In this regard, the regulator had asked the them to furnish details that could help in the probe. In their submissions, the entities have admitted to trading in shares of the dummy firms.
The IA (SEBI) was conducting detailed investigations in respect of dealings in the scrip of MIL in the wake of prima facie findings that certain dummy companies were incorporated to deal in MIL shares as well as reference from the IT Department indicating possible manipulation in FCCB pricing by Dangi/Ashika group entities.
The clearing of Patel's name comes a few weeks ahead of the third quarter review of the monetary policy, scheduled to be announced on 29th January
New Delhi: Renowned economist Urjit Patel's name has been cleared for appointment as the new Deputy Governor of the Reserve Bank of India (RBI), said a senior Finance Ministry official, reports PTI.
"Urjit Patel's name has been finalised," Department of Financial Services Secretary DK Mittal said.
Patel is at present a non-resident senior fellow at the Brookings Institution, a US-based think-tank. He is also a consultant to the Boston Consulting Group.
Patel has also been an executive director at IDFC, a private finance company.
He will take the place of Subir Gokarn, who was in-charge of the monetary policy department, has retired.
Gokarn's three-year term had ended in November 2012, but the government had given him one-month extension which expired on 31 December 2012.
According to an RBI statement yesterday, the monetary policy department will now be directly under Governor D Subbarao himself.
There are four deputy governors in RBI, of which two are from the central bank itself, one is from the banking sector and the fourth is an economist.
The clearing of Patel's name comes a few weeks ahead of the third quarter review of the monetary policy, scheduled to be announced on 29th January.
RBI Governor in the last policy review had indicated that there could be softening of policy rate in the January policy.
Dr KC Chakrabarty, Anand Sinha and HR Khan are Deputy Governors with RBI.