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Buy Back Norms and Fund Raising Process Eased Out By SEBI

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In order to relax the conditions for raising funds from the securities market due to the financial disturbance caused due to the Covid-19 pandemic, regulator SEBI has decided to ease buy-back regulations.

In financial parlance, a buy-back refers to repurchase of the company’s stocks from the existing shareholders. This process is either undertaken through the open market or the tender offer route.

The SEBI has decided to ease norms governing buy-back. At present, these regulations restrict companies from raising further capital for a period of one year from the expiry of buy-back period, except in the discharge of their subsisting obligations.

“It has been represented that the said period of one year may be reduced to six months, which would be in line with section 68(8) of the Companies Act, 2013,” the regulator said in a circular.

“To enable relatively quicker access to capital, it has been decided to temporarily relax the period of restriction… of the buy-back regulations. This relaxation will be applicable till December 31, 2020.”

The relaxation comes into force with immediate effect, it said.

A buy-back generally improves return on equity and earnings per share by reducing the equity base.

Furthermore, it gives an option to the shareholders to get cash in lieu of equity shares or to increase their percentage shareholding in the company following the offer, without additional investment.

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