Sebi clears new buyback norms, clubs FIIs, QFIs as FPI

The Securities and Exchange Board of India (Sebi) has cleared the new buyback norms, which will ensure that 50 percent of earmarked funds for buyback is utilised by the company and 25 percent is kept in escrow account.

There were more than 20 items on the agenda for the Sebi board meet that included rules for angel investors, SMEs and start-ups listing on a new platform without an IPO and clearing corporations getting the first right over collaterals and deposits. CNBC-TV18 exclusively learns of two big ticket items that have been approved by the board.
1) Sources say the market regulator has approved the Chandrasekhar committee's recommendations to club various classes of foreign investors into a new category.
The committee, headed by former Cabinet secretary K M Chandrasekhar, had suggested that FIIs and qualified foreign investors (QFIs) be merged into 'Foreign Portfolio Investor (FPI)'. The Sebi board will now need finance ministry's approval to implement the changes.
The purpose of Chandrasekhar committee’s proposal is to make investing in capital markets attractive and easier for foreign investors.
This committee also spoke about simplifying the Know Your Customer (KYC) norms. Its investment limit will be capped at 10 percent of the equity of a company.
Sebi is likely to submit the report along with its own views to the government or the finance ministry to be precise.
The second big proposal has to do with making buybacks of equity shares more stringent. Sebi wanted to make sure that companies are going in for such offerings with all the right reasons.
2) Sebi says is saying that 50 percent of the funds of the company being earmarked for a buyback have to be used. There is no such provision right now. In fact the market regulator had been very informally telling merchant bankers that at least 25 percent of the earmarked funds should be utilised. Also, the buyback period will be halved from 12 months to six months time. This because Sebi feels that all the companies that are actually serious about their buybacks that’s the amount of time they actually complete the buybacks in, so, lets just make it official.
3) For the first time ever what Sebi is going to ask companies to do is to keep a certain amount of their buyback funds in an escrow account.
Sources say its going to be 25 percent of the earmarked funds. In case companies falter on some account there will be a penalty and that could be of a maximum 2.5 percent on the funds lying in this escrow account.
Currently, there are two methods for buybacks. One is the open market way, which is the more popular one. The other one is the tender offer method. In case someone wants to subscribe to over 15 percent of the networth of the company there will be a mandatory tender offer.