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The Securities and Exchange Board of India's (SEBI) proposal to tighten share buyback rules, including setting a minimum that must be bought by companies, was welcomed by investors on Thursday who said it would curtail instances of abuses in the process.
The SEBI unveiled a series of proposals late on Wednesday, including one that says companies must purchase at least 50 percent of the announced buyback offer from the current minimum of 25 percent.
SEBI also proposed that the process be completed within three months of the announcement of the offer from the current one year, and suggested companies be barred from raising capital for two years after purchasing its own shares.
The regulator said the measures are meant to crack down on potential abuses as some companies have announced buybacks but did not actually end up doing so, benefitting nonetheless from the ensuing gains in their share price.
"The proposed framework by SEBI is good for investors and its chances of implementation are very high as the ultimate benefit of buybacks in many cases was not balanced between promoters and public shareholders," said G. Chokkalingam, chief investment officer at Centrum Wealth Management.
In some instances companies ended up buying back shares at prices well below the range provided in the announcement, Chokkalingam added.
SEBI's proposals open up a period of public consultations, and do not mark a final decision.