BUY BACK
OF
SHARES
Meaning of Buy Back of Shares
There is no definition given by the Company Act, 1956 about
the buy back of shares. But in s...
Objective of Buy Back of Shares
Shares may be bought back by the company on
account of one or more of the following reason...
SECTION
These were
inserted by the
Companies
(Amendment)
Act,1999.

The provisions regulating
buy back of shares are
conta...
SEBI

The Securities and Exchange
Board of India (SEBI) framed the
SEBI (Buy Back of Securities)
Regulations, 1999 and the...
Resources Of Buy Back
Free reserves
The securities premium account
The proceeds of any shares or other specified securi...
Conditions Of Buy Back
The articles should permit buyback.
A special resolution should be passed in general meeting of
t...
All the shares for buy back should be fully paid up.
Buy Back should be in Accordance with the SEBI
Regulations

 The r...
Before making purchases under buy back , a declaration of
solvency in the prescribed form has to be filed with the ROC.
...
Prohibition from further issue of securities within a period of
two years.

The securities should be extinguished and ph...
Prohibition of Buy Back
Through any/own subsidiary company
Through any investment company or a group of
investment compa...
Buyback under Companies Act : Snapshot
Conditions
Enabling
Provisions

Buyback Limits

Shareholders’ Buyback
Board Buyback...
Buyback under Companies Act : Snapshot

Manner of
Buyback

Debt-Equity
Ratio
Types of
shares which
can be bought
back

Fro...
Buyback under Companies Act : Snapshot

Explanatory
Statement to
Notice calling the
General Meeting
Pricing
Date of
Comple...
Buyback under Companies Act : Snapshot

Extinguishments
of shares bought
back

Within 7 days of the completion of Buyback....
SEBI Buy-Back of Securities by Listed
Companies Regulation, 1998
A COMPANY CAN BUY BACK ITS OWN
SECURITIES BY ONE OF THE F...
To buy back securities, a company should be
authorized by
 Special Resolution under Section 77-A(2) of the

companies Act...
 Release of the Public Announcement (Regulation 8)
 Filling of Offer Document.
 Dispatch of letter of offer to security...
Contents of Explanatory Statement
1.

2.
3.

4.
5.

The date of the meeting at which the proposal for buyback was approved...
7. a) The aggregate security holding of the promoter and of
the director of the promoter.
b) Aggregate number of equity pu...
Instances where Buyback should not be
effected


A company shall not buy back its specified securities
from any person th...
Methods of Buy Back
 Purchasing form existing security holders on a

proportionate basis (Tender Offer Method)

 Purchas...
Buy Back Through Tender Offer
 Offer Procedure:

Time Period for offer: 10 Working Days
Letter of offer to security holde...
Document Required
 Public announcement in English National Daily and Hindi

National Daily
 Draft letter of offer needs ...
Buy-Back
from the
open market
Through
Stock
Exchange

Bookbuilding
Process
Buy Back Through Stock Exchange
 Special Resolution in the Board meeting
 It should not be made from the promoters of th...
Contd…...
 Public announcement should also contain

disclosures regarding details of brokers and stock
exchange

 It sho...
Extinguishment of Certificate

(1) Extinguishment of certificates shall be
applicable mutatis mutandis.
(2) The company sh...
Buy-Back Through Book Building
 Special resolution in board meeting stating the maximum

price for the buy-back

 Compan...
Contd…
 Book building process shall be made though an electronically

linked transparent facility

 The number of biddin...
Extinguishment of Certificate

 Extinguishment of certificates shall be

applicable mutatis mutandis.
Source :-Business Standard
 Data dated :- 9th Nov 2011

SHARE BUYBACK: POSITIE
ASPECTS

1. It

could enable a
company to achieve its
desired capital structure
more quickly or fac...
SHARE BUYBACK: POSITIE
ASPECTS

3. Market generally interprets
buy-back as a positive aspect.
4. Shareholders have a choic...
SHARE BUYBACK:
NEGATIVE
ASPECTS
POSITIVE

Re-purchase of it’s own shares may
conversely have a negative signaling
effect.
...
THANK YOU
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149668 954593 esop_and_buyback_25_march_cci

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149668 954593 esop_and_buyback_25_march_cci

  1. 1. BUY BACK OF SHARES
  2. 2. Meaning of Buy Back of Shares There is no definition given by the Company Act, 1956 about the buy back of shares. But in simple words, we can say that buy back of shares means repurchase of its own shares by the company. In other words, buy back of shares means a company buying its own shares Buyback is reverse of issue of shares by a company where it offers to take back its shares owned by the investors at a specified price; this offer can be binding or optional to the investors It was opted by company if there was an addition funds with company and there is no profitable application where these funds can be invested.
  3. 3. Objective of Buy Back of Shares Shares may be bought back by the company on account of one or more of the following reasons •To increase promoters holding. •Increase earning per share. •To maintain a target capital structure. •Support share value. •To prevent takeover. •To pay surplus cash not required by business.
  4. 4. SECTION These were inserted by the Companies (Amendment) Act,1999. The provisions regulating buy back of shares are contained in Section 77A, 77AA and 77B of the Companies Act, 1956.
  5. 5. SEBI The Securities and Exchange Board of India (SEBI) framed the SEBI (Buy Back of Securities) Regulations, 1999 and the Department of Company Affairs framed the Private Limited Company and Unlisted Public company (Buy Back of Securities) rules, 1999.
  6. 6. Resources Of Buy Back Free reserves The securities premium account The proceeds of any shares or other specified securities.
  7. 7. Conditions Of Buy Back The articles should permit buyback. A special resolution should be passed in general meeting of the company authorizing buyback. The buyback should be equal to or less than 25% of the total paid up capital and free reserves of the company.
  8. 8. All the shares for buy back should be fully paid up. Buy Back should be in Accordance with the SEBI Regulations  The ratio of debt owned by the company should not be more than twice the capital and its free reserves, in that particular financial year.
  9. 9. Before making purchases under buy back , a declaration of solvency in the prescribed form has to be filed with the ROC. Affidavit has to be submitted. Declaration should be signed by atleast two directors of the company.
  10. 10. Prohibition from further issue of securities within a period of two years. The securities should be extinguished and physically destroyed within seven days of the last date of completion of buy back. Maintaining a register of securities – the consideration paid , the date of extinguishing and physically destroying of securities etc. Any default to comply with the requirements /rules is punishable
  11. 11. Prohibition of Buy Back Through any/own subsidiary company Through any investment company or a group of investment companies. If the company has defaulted in respect of repayment.
  12. 12. Buyback under Companies Act : Snapshot Conditions Enabling Provisions Buyback Limits Shareholders’ Buyback Board Buyback Must be authorized by Resolution of the Board of Directors. the Article of Association. A Special Resolution of the shareholders must be passed. For listed companies it must be by way of a Postal Ballot. 25% of the total Paid-up 10% of the total PaidCapital + Free up Equity Capital + Reserves; and Free Reserves. (This limit is only for amount utilized in the buy back). Not more than 25% of the total Paid-up Equity in that financial year. (This limit is for No. of shares to be bought back in a financial year).
  13. 13. Buyback under Companies Act : Snapshot Manner of Buyback Debt-Equity Ratio Types of shares which can be bought back From Open Market. From Existing Shareholders on Proportionate basis. From Odd Lots (i.e., where the lots of securities of a public company, whose shares are listed on a recognized stock exchange, is smaller than such marketable lot, as may be specified by the stock exchange). By Purchasing ESOP/ Sweat Equity shares. Not More than 2:1 (Debt/ (Equity Capital + Preference Capital + Reserves) after the buyback. Fully Paid-up.
  14. 14. Buyback under Companies Act : Snapshot Explanatory Statement to Notice calling the General Meeting Pricing Date of Completion Further Buyback Must contain the prescribed details. Not Applicable Free Pricing – No fixed basis Within 12 months of the Resolution. Not within 365 days from the date of buyback
  15. 15. Buyback under Companies Act : Snapshot Extinguishments of shares bought back Within 7 days of the completion of Buyback. Further Issue of Shares A Further issue of the same kind of securities or u/s 81(1)(a) cannot be made within 6 months of the buy-back, except by way of Bonus, Sweat Equity, ESOP, conversion of financial instruments, etc. Transfer to Capital Redemption Reserve If the Buyback is made out of Free Reserves, then amount equal to the Nominal Value of shares bought back must be transferred to the Capital Redemption Reserve account.
  16. 16. SEBI Buy-Back of Securities by Listed Companies Regulation, 1998 A COMPANY CAN BUY BACK ITS OWN SECURITIES BY ONE OF THE FOLLOWING METHODS  FROM THE EXISTING SHAREHOLDERS ON A PROPORTIONATE BASIS TENDER OFFER.  FROM OPEN MARKET  FROM ODD LOT HOLDER THROUGH
  17. 17. To buy back securities, a company should be authorized by  Special Resolution under Section 77-A(2) of the companies Act  A resolution passed by its Board of Directors under Section 77-A(2)(b)(i).
  18. 18.  Release of the Public Announcement (Regulation 8)  Filling of Offer Document.  Dispatch of letter of offer to security holders.
  19. 19. Contents of Explanatory Statement 1. 2. 3. 4. 5. The date of the meeting at which the proposal for buyback was approved by the Board of Directors of the company. The necessity of Buy-back. The maximum amount required under the Buyback and the sources of funds from which the buy-back would be financed. The basis of arriving at the buy-back price. The number of securities that the company proposes to buy-back.
  20. 20. 7. a) The aggregate security holding of the promoter and of the director of the promoter. b) Aggregate number of equity purchased or sold by people. 8. A confirmation that there are no defaults in repayment of deposits, redemption of debentures or pref shares or repayment of term loans to any financial institution(s) or bank(s). 9.A report addressed to the board of Directors by the company's auditor.
  21. 21. Instances where Buyback should not be effected  A company shall not buy back its specified securities from any person through negotiated deals, whether on or of the stock exchange or through spot transactions or through any private arrangement. (Clause 4.2)  Any person or an insider shall not deal in securities of the company on the basis of unpublished information relating to buy-back of specified securities of the company. (Clause 4.3)
  22. 22. Methods of Buy Back  Purchasing form existing security holders on a proportionate basis (Tender Offer Method)  Purchasing from open market (Through Stock Market)  Purchasing from odd lot holders  To employees under Scheme of stock Option or Sweat Equity
  23. 23. Buy Back Through Tender Offer  Offer Procedure: Time Period for offer: 10 Working Days Letter of offer to security holders as on Record Date Verification of offer: within 7 working days  Escrow Account If the consideration payable dos not exceed Rs.100crores-25% of the consideration payable; If the consideration payable exceeds Rs.100 crores-25% up to Rs.100 corers and 10% thereafter.  Payment to security holders Company should make payment to security holders within seven days.
  24. 24. Document Required  Public announcement in English National Daily and Hindi National Daily  Draft letter of offer needs to be submitted to Board within 5 Working days of the pubic announcement  Declaration of solvency along with letter draft letter Extinguishment of Certificate  Company shall extinguish and physically destroy the security certificate within the seven days from the date of acceptance  The particulars of the security certificates extinguished and destroy shall be furnished to the stock exchange where the specified securities of the company are listed within seven days of such act.  Company should maintain a record of security certificate which have been cancelled and destroyed.
  25. 25. Buy-Back from the open market Through Stock Exchange Bookbuilding Process
  26. 26. Buy Back Through Stock Exchange  Special Resolution in the Board meeting  It should not be made from the promoters of the company  Appoint Merchant Banker and make public announcement  Public announcement should be made at least seven days before the buy back  A copy of announcement should be filled with Board within 2 days along with specified fees
  27. 27. Contd…...  Public announcement should also contain disclosures regarding details of brokers and stock exchange  It should be done with electronic trading facility  Information regarding securities purchased and published same in a national daily  Identity of company shall appear on the electronic screen
  28. 28. Extinguishment of Certificate (1) Extinguishment of certificates shall be applicable mutatis mutandis. (2) The company shall complete the verification of acceptances within fifteen days of the pay-out.
  29. 29. Buy-Back Through Book Building  Special resolution in board meeting stating the maximum price for the buy-back  Company shall appoint a merchant banker and make a public announcement  And it should be made at least 7 days prior to buy back procedure  Specific amount shall deposit in escrow account  A copy of announcement should filed with board along with the fees
  30. 30. Contd…  Book building process shall be made though an electronically linked transparent facility  The number of bidding center should not be less than thirty  The offer for buy back shall remain open for notless than 15 days and not more than 30 days  Merchant banker and company will decide the price based on acceptances received  The final buy back price would be the highest price accepted shall be paid.
  31. 31. Extinguishment of Certificate  Extinguishment of certificates shall be applicable mutatis mutandis.
  32. 32. Source :-Business Standard  Data dated :- 9th Nov 2011 
  33. 33. SHARE BUYBACK: POSITIE ASPECTS 1. It could enable a company to achieve its desired capital structure more quickly or facilitate a major restructuring. 2. It could avert a hostile takeover bid by reducing the number of shares in circulation
  34. 34. SHARE BUYBACK: POSITIE ASPECTS 3. Market generally interprets buy-back as a positive aspect. 4. Shareholders have a choice of deciding whether or not to receive the payout by selling or holding their shares, unlike a dividend payout. 5. Returning excess cash by way of a share buy-back gives a company greater flexibility with regard to it’s dividend policy.
  35. 35. SHARE BUYBACK: NEGATIVE ASPECTS POSITIVE Re-purchase of it’s own shares may conversely have a negative signaling effect. 2. Management may not seek to utilize any existing excess cash effectively 3. Possible mismanagements may arise if-Too high a price is paid for the repurchased shares or if -Cash resources are eroded to the level that could give rise to a risk of insolvency. 4. A return of funds by way of a share buy-back is less certain than an annual dividend stream. 1.
  36. 36. THANK YOU

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