Sebi chairman C.B. Bhave in Calcutta on Thursday. Picture by Kishor Roy Chowdhury
Calcutta, May 14: Sebi will review the regulations on the buyback of shares. It has detected instances of companies not undertaking a buyback after making an announcement.
The issue has come to our notice and well take a relook at the regulations, said Sebi chairman C.B. Bhave.
The market regulator views these hollow buyback offers as a ploy to rig share prices.
Sebi needs to amend its regulations to stop such practices. Under the current regulations, restricting such offers would entail litigation, Bhave said.
We have got some suggestions that a company should buy a minimum quantity of shares once it announces a buyback, Bhave said.
When a company buys back its shares, its equity base gets reduced, which increases the earnings per share and the share price.
However, in the recent past, a number of firms had announced buybacks in large quantities but did not honour the offers.
The buyback announcement itself works as a trigger for a price rise; and when the share price increases, promoters sell a part of their holding.
Last year, companies such as DLF and Bosch had announced buybacks worth Rs 1,100 crore and Rs 640 crore, respectively.
But they bought back only a fraction of the announced amount.
Sebi, however, may have to wait for the passage of the New Companies Bill.
The bill proposes that all capital related issues of a listed company will be regulated by Sebi.
For a non-listed company, the department of company affairs will be the decision-maker.
Sebi also wants to develop the corporate bond market in a more transparent way before the money mobilised under the New Pension Scheme starts flowing in.
The secondary market transactions and settlement processes in corporate debt market still work on a bilateral basis. We need to widen and deepen the corporate bond market, said Bhave.
He said that the market regulator had proposed a clearing corporation for settlement of transactions in the bond market.