Market regulator Sebi on Wednesday eased the 12-month cooling off period that companies have to observe between buybacks and equity fund raising. The move is seen as an incentive to corporates to announce share repurchase programme to support their share prices battered by the covid-19 pandemic.
Under Section 24(i)(f) of Sebi’s buyback regulations, a company is restricted from raising further capital for one year from the expiry of buyback period.
“To enable relatively quicker access to capital, it has been decided to temporarily relax the period of restriction provided in regulation 24(i)(f) of the Buy-back Regulations. Accordingly the words “one year” shall be read as “six months” in the said regulation,” the regulator said in a circular.
The moves come on the back of several suggestions received by Sebi with respect of easing of norms pertaining to capital raising.
The one-year cool off period between buybacks and fund raising is to prevent manipulation, say experts.
A company uses its reserves to carry out buyback, which entails extinguishing of a portion of paid up shares. As a result, the exercise is the opposite of equity fund raising, where the company issues new paid up shares to raise money to meet certain objective.
Already, about a dozen companies have launched share buybacks amid a sharp fall in their stock prices. Some of these include Motilal Oswal Financial Services, Delta Corp, Dalmia Bharat and Emami. Most of the ongoing buybacks are being under through the so-called ‘open market’ route. Under this method, a company fixes a maximum buyback price and has the option to buy its own shares on the exchange platform as long as the stock price remains below the buyback price.
Experts said more companies could launch buybacks after Sebi’s relaxation.