Buyback process
Is a buyback mandatory?
The requirement of a buyback is defined within the corporate resolution and can be event and/or time delimited.
By default, the buyback obligation is triggered by either the sale of the property to a 3rd party buyer or by sale of shares of the issuing company (title owner).
Note: The buyback is not required if the new shareholders fully adopt and abide by the relevant resolution.
Can an issuer determine the buyback threshold?
Yes, at signing of the corporate resolution, the issuer should define the buyback threshold, effectively setting the buyback governance rules up front.
Is there a time limit for an issuer to execute a buyback?
When a buyback offer to token holders is placed, the buyback smart contract requires the input of a date and time until token holders need to engage to reach the buyback threshold. If the threshold is not reached within the defined period of time, the offer is not deemed accepted and the issuer's buyback is unsuccessful.
The process can be restarted and will likely require additional price negotiations between issuer and token holders.
Can an issuer define a time-delimited buyback obligation?
Optionally, yes. If the buyback is mandatory at a predefined date and at a predefined price, the tokenization offering works similarly to a debt offering.
How is the buyback initiated?
The buyback is streamlined with the use of the buyback smart contract. You can find the description of the process here.
Is the buyback initiated by the issuer or the majority of token holders?
In general, it is initiated by the issuer before the buyback obligation is triggered according to the terms defined at token issuance.
There is a “buyback threshold” that defines the quorum for the buyback process to be successfully accepted by the token holders. This threshold gives some power of negotiation to the issuers and is defined by the issuer when structuring the tokenization deal.
How does the buyback settlement process work?
If the issuer’s buyback offer is accepted by the required amount of token holders, then the issuer can proceed with the transaction and deposit required funds in the buyback smart contract.
However, if the threshold quorum is not reached, the tokens get released back to the token holders and the issuer is legally in the same situation as before the buyback process was started.
The issuer can then decide to reattempt with a better offer or not pursue the buyback.
What if the buyback offer information does not reach token holders?
As KYC is required and the infrastructure prevents a user to hold any tokens if not whitelisted within the protocol, the likelihood of a user not being reached with the buyback information is decreased drastically.
Is the issuer required to initiate a buyback when the amount of mortgage/debt is changed?
The issuer is legally bound to buyback tokens prior to any legal dealings with the real estate asset (sale, transfer, mortgage...).
This means, if there is a mortgage already present at time of token offering, that is perfectly fine as the token buyers will be informed about it before making the decision to invest.
However, if any new mortgaging or remortgaging happens, the deal structure changes and token holders need to be able to exit before the change takes place.
Is it possible that a property token sustains for 20, 30 year or more if the issuer decides not to transfer title to a 3rd party?
In theory, yes, the lifecycle of a tokenized property can last indefinitely just like equity in a company can. In practice, however, the lifecycle will be probably shorter as the title owner will probably find good opportunities on the market to sell the property and create a liquidity event for all parties, token holders included.
That being said, there is also potential for a new shareholder to fully adopt the resolution and acquire the property holding company in its entirety alongside its liability towards token holders, as per Article 3 of the resolution.
More information on the buyback threshold mechanics can be found here.
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