New Share Buyback Rules Explained

By | December 21, 2022

Pichle 2 saal mai humne kaafi companies ko dekha apne shares buyback karte hue jahan company apne hi share ko stock market mai kharidti hai. Waise ideally toh buyback ka purpose hota hai investors ko reward dena lekin existing buyback mechanism mai company bohut hi smartly tab buyback karti hai jab prices low hote hain aur phir jaise hi price up hota hai ussey sell kar deti hai. Aur yehi cycle phir repeat hota hai.

 

Interestingly, 1998 ke pehle Indian companies apne shares buy nahi kar sakti thi. Lekin, 1998-99 mai laws change huye aur Companies Act aur Sebi guidelines dono ne hi legally companies ko buyback ke rights diyen aur tabse leke ab tak companies timely buyback karti rehti hai.

 

US mai toh yeh stock buyback aka open market repurchase ko economy contraction ka major root cause bataya hai – kyunki iss process mai company kaafi debt ridden ho jaati hai, jo out of control ho sakta hai.

 

Besides, jab companies yeh buybacks karti hain, woh apna liquidity bhi kam kar deti hai – jo company ko economic downturn mai declining sales aur profits mai kaam aa sakta hai.

 

Now, Why do U.S. companies have done massive buybacks?

 

With the majority of their compensation coming from stock options and stock awards, senior corporate executives have used open-market repurchases to manipulate their companies’ stock prices to their own benefit and that of others who are in the business of timing the buying and selling of publicly listed shares.

 

Buybacks enrich these opportunistic share sellers — investment bankers and hedge-fund managers as well as senior corporate executives — at the expense of employees, as well as continuing shareholders.

 

Yehi sab reason hai ki ab SEBI India mai iss problem ka solution nikaal raha hai. Kaise? Well, by changing the buyback rules.

 

Chaliye dekhte hain kya hai yeh new buyback rules

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Market ki credibility aur transparency ko badhane ke liye, SEBI ne sabhi listed companies ke liye buyback rules ko tight kiye hain, aur 6 important announcement kia hai –

 

  1. Companies have to now use 75 percent of the proceeds of the buyback undertaken through the stock exchange route from the existing minimum of 50 percent.
  2. Buybacks will be undertaken through a separate window on stock exchanges till the time they are permitted through the exchanges, the regulator said. 3.
  3. Sebi has also proposed a reduction in the time a share buyback process is open in the market to 66 days from the present 90 days.
  4. Reduction in timeline for completion of buyback by 18 days by removing the requirement of filing draft letter of offer with Sebi and its observations thereof, and reduction of the duration of the tendering period and period available for payment of consideration to the shareholders.
  5. Permitting upward revision of buyback price until one working day prior to the record date.
  6. Making it mandatory to place the relevant advertisements/ documents with respect to buyback, such as, copy of the public announcement, letter of offer etc. on the respective website of the stock exchange(s), merchant banker and the company for better dissemination of information to shareholders.

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