Amendments in SEBI (Buyback of Securities) Regulations, 2023
Buyback of shares in case of listed companies is regulated by SEBI (Buyback of securities) Regulations, 2018. On February 2023, SEBI has introduced major amendment in the provisions relating to buyback via SEBI (Buyback of securities) (Amendment) Regulations, 2023.
Summary of the amendments
- Companies cannot buy back its shares from odd lot holders. The definition of odd lots is now omitted.
- The words “both standalone and consolidated financial statements of the company” is substituted by “both standalone and consolidated financial statements of the company, whichever sets a lower amount” hinting the restrictions on buyback to a lower amount.
- From 01st April 2025, the companies will not be allowed to buyback its shares from open market through stock exchange. For FY 2022-23, only 15% of paid up capital and free reserves of the companies is allowed to be bought back via open market buyback through stock exchanges and the same has been reduced to 10% and 5% for FY 2023-24 and FY 2024-25 respectively.
- In case of buyback through tender offer, the Board may, till one working day prior to the record date, increase the maximum buy-back price and decrease the number of securities proposed to be bought back, such that there is no change in the aggregate size of the buyback.
- All the filings for buyback have now mandatorily to be made in electronic mode after being digitally signed by such authorized persons.
- Dispatch of letter of offer through electronic mode and only, if shareholders request, the physical copy can be provided.
- Public announcement for resolution passed on buyback of shares, now has to be submitted to Stock exchanges too, along with SEBI. The Stock exchange, upon receipt of such document, has to disseminate the same information to the Public and post it in their Website. The company and Merchant Banker is also required to post the public announcement on their website.
- Before authorizing the buyback, companies are now required to obtain prior consent from its lender, if they have breached any covenants with such lenders and the disclosure of the same shall be mentioned in the letter of offer for buyback.
- A certificate from Merchant banker, who is not an associate of the company, certifying that the buy-back offer is in compliance of these regulations and that the letter of offer contains the information required under these regulations shall be filed with the SEBI.
- In case of buyback through tender offer, no draft letter of offer is required to be filed with SEBI.
- Only the bank guarantee in favour of merchant banker in Escrow account shall not be returned the completion of all obligations under these regulations. Approved securities has been excluded from the restriction.
- Extinguishment of certificates now has to be done in presence of Secretarial auditor instead of statutory auditor.
- Compliance certificate for extinguishment and destruction of share certificates, now has to be given by Secretarial audit instead of statutory auditor.
- Increase in utilization of amount earmarked for buyback of shares from 50% to 75%. Further, 40% of such shall be utilized within the initial half of the specified duration.
- Further, the buyback process through book building process has also been revamped.
Reduction in timelines
- Buyback offer on stock exchange shall be closed:
- within six months, if the buy-back offer is opened on or before March 31, 2023;
- within 66 working days, if the buy-back offer is opened on or after April 1, 2023 and till March 31, 2024; and
- within 22 working days, if the buy-back offer is opened on or after April 1, 2024 and till March 31, 2025:
Provided that with effect from April 1, 2025, the option of open market buy-back through the stock exchange shall not be available to any company except in cases where the buy-back offer has opened on or before 31st March 2025.
- Timelines for filing letter of offer with SEBI reduced from 5 to 2 days from date of public announcement.
- Buyback offer must be opened within 4 days from the date of dispatch of the letter of offer.
- Open period for buyback offer has been reduced from 10 working days to 5 working days.
- Opening of Escrow account within two working days of public announcement. Previously, it was provided to do so on or before the opening of offer.
- Bank guarantee in favour of merchant banker in Escrow account , which had validity of thirty days from expiry of buyback period is now modified as “thirty days after the expiry of buyback period or until the completion of all obligations under these regulations, whichever is later.”
- Payment of buyback consideration has to be done within five workings days (previously seven workings’ days) from the closure of offer.
- Extinguishment of certificates must be done within seven working days instead of seven days.
- Fees for filing letter of offer has been omitted.
Can consist of below.
Cash deposited with a scheduled commercial bank (or)
Cash including bank deposits deposited with a scheduled commercial bank (or)
bank guarantee in favour of the merchant banker (or)
Bank guarantee issued in favour of merchant banker by any scheduled commercial bank (or)
deposit of acceptable securities with appropriate margin, with the merchant banker (or)
Frequently traded and freely transfereable equity shares or other freely transferrable securities (or)
Or combination of above
Government securities (or)
Units of mutual funds invested in gilt funds and overnight schemes (or)
Or combination of above
Through the amendments, the SEBI has announced its intention to restrict buyback of shares from open market through stock exchange and to reduce the period for closure of the buyback transaction at the earliest. We could also see the inclusion of secretarial auditor for issuance of compliance certificate and inclusion of additional methods to be deposited in Escrow accounts.
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