It is one of the 2 methods used by companies to buy back. Here, the company makes an offer to buy a certain number of shares at a specific price, directly from the shareholders. This ensures all shareholders are treated equally, irrespective of whether they hold a majority or a minority stake.
Same time, not many opt for this route. In the past two years, Piramal Healthcare was the only one to take this route. The modification in the norms will not lead to companies opting for this route, as it is more theoretical.
The other route, and the more popular one, is where the firm purchases its own shares from the open market.
Till now, there was no reservation in buyback offers under the SEBI guidelines. Now, however, there will be 2 categories: small investors/shareholders and a general category for others — institutions and HNIs (High Net worth Individuals).
Also, anyone with up to Rs. 2 lakh worth of shareholding will fall under the category of small investors. Till now, this limit stood at Rs. 1 lakh.
It will benefit small investors only when the buyback is oversubscribed, as in such cases the shares will be bought back on a proportionate basis. The over subscription will be considered independently for each category.
Investors selling shares via the tender route will have to pay tax according to their applicable slabs (10% to 30%). There is no STT (Securities Transaction Tax). Transactions through this route will be treated as business income. However, there will be savings in terms of nil brokerage fee.
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