More importantly, Sebi
has proposed that debt-equity ratio of 6 can be allowed for subsidiaries that are either non-banking financial companies (NBFCs) or housing finance companies (HFCs).
The Ministry of Corporate Affairs (MCA) had, in 2016, allowed government NBFCs and HFCs to conduct buybacks if their debt-equity ratio didn’t exceed 6. Further, NBFCs, HFCs and infra companies have typically high debt-equity, given the RBI allows them to have leverage of up to 7:1 for non-deposit-taking NBFCs with assets below Rs 500 crore.
The gaps in buyback
regulations had come to the fore in January, after Sebi
had rejected L&T’s Rs 9,000-crore buyback
proposal. Though L&T’s stand-alone debt-equity ratio after the buyback
would have been at comfortable levels of 0.5 times, it would have breached the threshold of 2 on a consolidated basis. The rejection had sparked a debate on whether Sebi
should consider the debt on a standalone or consolidated basis, particularly if the subsidiary was in the business of financing, where high debts are a norm.