In a move that will make buybacks more friendly for small shareholders, the Securities and Exchange Board of India (Sebi) announced on Tuesday that 15% of a buyback offer will have to be reserved for such investors.
A small shareholder has been defined as one who holds shares with market value not exceeding R2 lakh. The value of the shares, the regulator said, will be calculated on the basis of closing price of shares on the stock exchange on which the concerned scrip traded the highest volumes, as on the record date.
?… fifteen percent of the number of securities which the company proposes to buy back or number of securities entitled as per their shareholding, whichever is higher, shall be reserved for small shareholders,? Sebi observed in a circular.
Interestingly, merchant bankers while welcoming the move say that the reservation will not lead to any changes on the ground as historically buyback offers have suffered from low participation.
?The concept is a sound one although it is unlikely to have any significant change given the poor success rate or track record of prior buyback offers,? says Sanjay Sakhuja, CEO, Ambit Corporate Finance. ?The issue is that the moment a buyback offer is announced the market price shoots up. So a small shareholder can still sell it in the open market at a better price,? he explains.
Prithvi Haldea of Prime Database, meanwhile, is of the opinion that the Sebi move will give ?small shareholders better assurance of acceptance in a buyback offer.? This is yet another move to look at small shareholders seriously,
he added.
According to the capital market regulator, the shares proposed to be bought back shall be divided in to two categories; the first a reserved category for small shareholders and second, the general category for other shareholders.
The entitlement of a shareholder in each category would be calculated accordingly. After accepting the shares tendered on the basis of entitlement, shares left to be bought back, if any in one category shall first be accepted, in proportion to the shares tendered over and above their entitlement in the offer by security holders in that category and thereafter from security holders who have tendered over and above their entitlement in the other category.
Buyback norms have been under review for quite sometime now as the regulator watched companies making ?hollow? buyback offers. Many companies announced a buyback programme without any serious intent of buying back the shares. Sebi has now directed merchant bankers to mention the minimum number of shares to be bought back in the offer document.
On Tuesday, the capital markets regulator further clarified that the letter of offer, along with the tender form, shall be dispatched by the company to shareholders, eligible to participate in the buyback offer, not later than five working days from the day it receives comments from its board.
Moreover, the buyback offer should open not later than five working days from the day the letter of offer is dispatched. The offer for the buyback shall remain open for a period of ten working days. A company intending to buy back its shares, would need to file a copy of the resolution, with the board and the stock exchanges within two working days of the date of the passing of the resolution.
