Sebi mulls new rule for promoters turning public shareholders
PrintListen to this Article
In the past one year, promoters of a few companies chose to re-classify themselves as public shareholders to comply with the rule that any listed firm must have a minimum public holding of 25%. The strategy did not go down well with the capital markets regulator, which feels that promoters took the easy way out to comply with regulations.
But now, the Securities & Exchange Board of India (Sebi) is working on a policy to allow promoters to describe themselves as public shareholders as long as the former give up their special rights and lower their stake to 5% or less in the companies concerned.
"Also, such a promoter may have to step down from key managerial positions in the company as well as in other group entities, and refrain from exercising any control either directly or indirectly," ssaid a person familiar with the development.
Some of the promoters had tried to re-classify themselves as public shareholders by altering the companies' Articles of Association (AoA). However, this could be done with promoters retaining full control over the company - a practice that Sebi disapproves.
 |
In some markets, company founders sacrifice their promoter status and the right to nominate board members without paring stakes.
Sebi permits re-classification in case of buyouts, where the acquirer - or the new owner of the company who makes an open offer to other shareholders - emerges as the new promoter. In this case, the original promoter's stake is clubbed with the public shareholding.
Securities lawyers, too, back this practice as the re-classification is followed by an open offer and adequate disclosures are made in the offer document.
But what worries the regulator are cases of joint control, with one promoter not fully giving up the rights in favour of the acquirer (or the new buyer), they said.
Corporate lawyers said the proposed rule - clearly laying down the conditions - will be a good move as it's not always possible for individuals or corporate entities to remain as promoters.
"Sebi's recent clarification in the case of Gillette India reinforces the position that 'once a promoter is not always a promoter'. When a company undergoes a change in control, the names of the promoters also undergo a change. This is irrespective of the fact that the erstwhile promoters may continue to hold some residual stake in the company," said Akila Agarwal, partner, Amarchand & Mangaldas & Suresh A Shroff & Co.
For instance, in 2011, when Cairn India sold its majority stake to the Vedanta Group, the residual shareholding of Cairn UK Holdings was re-classified as public shareholding since Cairn was no longer in control of the company.
But experts such as Sandeep Parekh think that Sebi may have taken a rigid stance on the subject. "Re-classification should be permitted freely subject to the same being backed by a statement asserting that they are no longer part of the promoter group," said Parekh, founder of FinSec Law Advisors. "There should be no maximum shareholding or other such rigid norms as a person may be a substantial holder. For example, private equity investors whose interests are more aligned with the minority shareholder rather than with the promoter." (Economic Times)
Category : SEBI | Comments : 0 | Hits : 290
A financial influencer, also known as finfluencer, who was also involved in imparting training related to stock market trading has been asked to part with a little over ?12 crore, which it made unlawfully. The funds are to be credited or deposited by Ravindra Balu Bharti into an interest-bearing escrow account that has been set up in a nationalised bank especially for that purpose. The regulator stated in an order that the escrow account(s) would establish a lien in favour of SEBI and that th...
The Securities and Exchange Board of India (Sebi), the country's market regulator, has announced the launch of an optional same-day (T+0) settlement cycle for a select group of 25 stocks starting March 28, as per a circular published on its website last Thursday. This new initiative, referred to as the beta version, is set to coexist with the traditional next-day (T+1) settlement cycle, where trades are settled within 24 hours of execution. The T+0 settlement option will be available for ...
Capital markets regulator Sebi on Thursday slapped a fine of Rs 48 lakh on eight entities, including promoters of United Polyfab Gujarat Ltd (UPGL), for manipulating the share prices of the company. These entities have to pay the penalty jointly and severally within 45 days, as per an order. The order came after Sebi conducted an investigation of UPGL and trading by certain entities in the scrip of the company, to ascertain whether there was any violation of the provisions of the PFUTP (Pr...
Sebi alerts investors about the growing trend of unregistered entities falsely claiming Sebi registration and offering unrealistic returns. Investors are advised to verify the registration status and consider the inherent risks associated with high-return investments. The Securities and Exchange Board of India (Sebi) has issued a warning to investors, cautioning them against investing money with unregistered entities that promise assured or exceptionally high returns on investments. This advi...
Capital markets regulator Sebi on Thursday issued orders of action against 15 guest experts of the Zee Business channel for unlawful trading. The entities made unlawful gains to the tune of Rs. 7.41 crore from such trades and the profit was shared with guest experts as per prior understanding, Sebi noted. The market regulator also asked the guest experts to pay Rs.7.41 crore. The guest experts appeared on the Zee Business channel from 1 February 2022 and 31 December 2022. "The facts of t...
Comments