Share buyback, also known as the share purchase is essentially a procedure where a company repurchases the shares from its investors or shareholders at the current market price or at a premium, but not higher than the maximum buyback price. There are many prominent methods of buyback of shares in India. Let’s discuss them in detail one by one.
Tender Offer Method
In the tender offer share buyback method, the company fixes the number of shares and buyback price. Here the promoters and shareholders of the company are allowed to offer their shares for buyback. The shareholders are sent an offer letter along with a form and prescribed fees. The form is required to be filled with the desired details along with the required documents. There are some prominent points that must be taken into consideration, which are as follows:
- The letters must be dispatched to the shareholders or promoters of the company at least 21 days before the tender buyback offer.
- The offer remains active or open for minimum 15 days and maximum 30 days.
- The payment must be made to the shareholders within 15 of the tender buyback closure.
Open Market Share Buyback Method
Here, the company fixes a maximum buyback price and purchases the shares from the market during a defined time period. The company also has the option to lower the number of shares and price for buying back according to the situations. The prominent difference between the tender offer and open market method is that the promoters are not allowed to take part in the buyback process. There are some prominent points that must be taken into consideration in the open market share buyback method, which are as follows:
- A company needs to appoint a merchant banker.
- The public announcement for the share buyback offer through the open market must include the date and name of the shareholders to whom the offer letter will be sent.
- The offer letter to the shareholders must be sent within 21 days from the submission of the draft with the Securities and Exchange Board of India (SEBI) through the merchant banker.
- The date of open market share buyback offer must be made at least 7 days.
Buyback of Shares through Stock Exchange
The buyback of shares in India can also be made through the stock exchange for this purpose; there are certain rules or points, which everyone must know. These are listed below:
- The company must fix the maximum price at which the buyback offer will be made to the shareholders.
- The shares must not be purchased back from the promoters of the company.
- The public announcement with regard to the share buyback through the stock exchange must be made by the merchant banker appointed by the company within 7 days from the date of passing the resolution.
- After the public announcement has been made, the company must make it a point to file a copy to the board members.
- It is important that the company must specify the total number of the shares bought back to the stock exchange daily and also provide the same information on its website.
- The buyback offer must only be made on those stock exchanges having the nationwide terminal facility.
- It is important that the company must use at least 50% of the amount mentioned in the board resolution for the purpose of share buyback.
Share Buyback Offer Rules
Whether a company follows a tender offer or open market share buyback method, there are certain rules that must be taken into consideration. These are as follows:
- Bonus shares are not at all allowed during the share buyback.
- Payments must be made to the shareholders or promoters through cash or cheque.
- Once the announcement for the share buyback is made, then it cannot be taken back.
- There are certain important things required to be revealed like the total number of the shares purchased, the total amount invested for the buyback process, shareholder details from whom the shares have been brought back.
The shareholder’s decision to participate in the buyback offer of the company mainly depends upon various prominent factors, which are buyback price which the company is offering, the number of shares that can be sold and growth prospects of the company. The investors must keep a tab on the method of buyback of shares before they decide to sell their shares or participate in the offer.