SEBI has issued a discussion paper on May 22, 2019 to seek public comments on the suggestions relating to review of conditions for buy-back of securities (last date for which has elapsed). Under the SEBI (Buy-back of Securities) Regulations, 2018, one of the main conditions for buy-back of securities is that the aggregate of secured and unsecured debts owed by the company after buy-back should not be more than twice the paid-up capital and free reserves of such a company (however, if a higher ratio is specified under the Companies Act, 2013, the higher threshold would prevail). SEBI is of the view that the financial statements considered for evaluating compliance with the aforesaid test would be considered on a conservative basis (i.e., both standalone and consolidated basis).

Given that non-banking financial companies (‘NBFCs’), housing finance companies (‘HFCs’) and infrastructure companies have higher debts because of the nature of their businesses, the primary markets advisory committee of SEBI has proposed adoption of a different approach in case of listed companies with NBFCs, HFCs and infrastructure companies as subsidiaries, the key proponents of which are: (i) the post buy-back debt to capital and free reserves ratio of 2:1 for the listed company (other than for companies for which such ratios have been notified under the Companies Act, 2013) should be considered on a consolidated basis, after excluding such subsidiaries which are regulated and have issuances with AAA ratings; and (ii) such subsidiaries should have debt to equity ratio of not more than 5:1 on standalone basis.