Promoters buyback not to trigger takeover code, says Sebi panel

MUMBAI, NOV 7: The Securities and Exchange Board of India (Sebi) is planning to exclude the increase in stake by a promoter buying back shar...

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MUMBAI, NOV 7: The Securities and Exchange Board of India (Sebi) is planning to exclude the increase in stake by a promoter buying back shares in his company from the provisions of the takeover code. It has also decided that all buyback offers which are made through an offer process outside the stock exchange route, would involve setting up of an escrow account to protect the small shareholders.

The Sebi appointed group on buyback, which met in Mumbai today, decided to refer the matter to the Bhagwati panel on takeovers to study the implications of buyback on the takeover code. "The details of the buyback norms would be announced after the SEBI board meeting in Delhi on November 10," Sebi chairman, D R Mehta, said here today.

The chairman said that the Sebi will make it mandatory on a company to suggest a price at which it plans to make the offer for buyback and seek approval from the shareholders for this price. "The emphasis of the committee and the Sebi has been on transparency," said Mehta.

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However,if the promoter holding in a company increases on account of the buyback with no change in management control it would be granted a general exemption, Mehta said.

The company would, at the time of seeking the approval of shareholders at the extra-ordinary general meeting justify a certain price and only if the shareholders approve of this price would the buyback go through at this price.

“In order to prevent the promoter from having an undue advantage, it was decided that the promoter should not be allowed to tender his shares through the stock exchanges,” Mehta told this newspaper. This is being done to prevent the promoter from enjoying an unfair advantage.

The group has also decided not to allow buyback of shares through the negotiated deal route. The promoter would also be required to declare upfront his intent to sell his holding to the company and the exact amount of shares that would be tendered, so as to leave no room for manipulation.The committee was also of the view that the regulatorshould not be involved in pricing, but ensure transparency and protection of investor interests, Mehta said.