Securities & Exchange Board of India Approves Relaxed Buyback Norms For Firms With Housing Finance, NBFC Arms

The Securities & Exchange Board of India has eased its rules for buyback by listed companies which have housing finance and NBFC subsidiaries.

Repurchase of shares by listed companies is governed by buyback regulations of SEBI as well as the Companies Act.

As per norms, buyback offers cannot exceed 25% of the aggregate paid-up capital and free reserves of the company, but shareholders' approval is required through a special resolution in case the size exceeds 10%.

Under the Companies Act, a buyback is permitted only if the ratio of the aggregate of secured and unsecured debts owed by the company after a buyback is not more than twice the paid-up capital and free reserves, unless a higher debt-to-equity ratio is specified.

Incidentally, SEBI’s decision to amend its regulations also follows a notification by the Ministry of Corporate Affairs permitting government companies carrying out non-banking finance and housing finance activities to launch buybacks resulting in up to 6:1 debt to equity ratio post the share repurchase.

SEBI took into account the feedback to a public consultation process launched in May and decided to continue the current approach of allowing buybacks resulting in post-buyback debt-to-equity ratio of up to 2:1, except for companies for which a higher ratio has been notified under the Companies Act, based on both standalone and consolidated basis.

Buybacks would still be allowed if the consolidated ratio is up to 2:1 after excluding the subsidiaries that are NBFCs and housing finance companies regulated by RBI or National Housing Bank, the SEBI notification stated.

Yet, the standalone debt to equity ratio of all such excluded subsidiaries should not exceed 6:1, as per approved norms, it stated.