Buy Back of Securities means the purchase by the company of its own shares. Buy-back of equity shares is an important mode of capital restructuring. It is a corporate financial strategy which involves capital restructuring and is prevalent globally with the underlying objectives of increasing earnings per share, averting hostile takeovers, improving returns to the stakeholders and realigning the capital structure.
Buy Back of Securities is done by the company with the purpose to improve liquidity in its shares and enhance the shareholders’ wealth. Under the SEBI (Buy Back of Securities) Regulations, 1998, a company is permitted to buy back its shares from:
- existing shareholders on a proportionate basis through the offer document;
- open market through stock exchanges using book building process; and
- shareholders holding odd lot shares.
The company has to disclose the pre and post-buy back holdings of the promoters. To ensure completion of the buy back process speedily, the regulations have stipulated time limit for each step. For example, in the cases of purchases through stock exchanges, an offer for buy back should not remain open for more than 30 days. The verification of shares received in buy back has to be completed within 15 days of the closure of the offer. The payments for accepted securities has to be made within 7 days of the completion of verification and bought back shares have to be extinguished and physically destroyed within 7 days of the date of the payment. Further, the company making an offer for buy back will have to open an escrow account on the same lines as provided in takeover regulations.