• News
  • Columns
  • Interviews
  • BW Communities
  • Events
  • BW TV
  • Subscribe to Print
  • Editorial Calendar 19-20
BW Businessworld

Sebi Charts Fresh Promoter Stake Sale Routes

Photo Credit :

Market regulator Sebi on 29 August amended its rules to allow promoters to use rights and bonus issue of shares for dilution of their stake to meet minimum public holding norms, and said it would consider any further relaxation in this matter on case by case basis. The promoters will have to forego their entitlement to shares being issued in such rights and bonus issues, the Securities and Exchange Board of India (Sebi) said in a circular.

These two additional avenues for sale of shares by promoters to meet minimum public holding (25 per cent for private sector companies and 10 per cent for PSU entities) norms were approved by Sebi's board on August 16 when Sebi chief U.K. Sinha had said that Indian companies will be allowed to achieve the minimum 25 per cent public shareholding rule through the allocation of bonus or rights shares.

Sebi already allows promoters to dilute their holdings through newly introduced methods like IPP (Institutional Placement Programme) and Offer for Sale (OFS), as also traditional routes like Follow-on Public Offer (FPO).

As per the board approval, Sebi has now amended its relevant regulations.The move would force many controlling stakeholders to pare down their shares, but many companies have failed to meet this because of poor market conditions. The regulator had also announced a slew of measures on 16 August, including those relating to expense ratios and taxation, to boost the asset management industry, which has been badly hit by sluggish markets and recent changes in regulations. In a major decision that could make it expensive for investors to put money in mutual funds, Sebi decided that any service tax would be charged to ultimate investor, not to the asset management company (AMC) as is the practice at present. (Read: Major Reforms In IPO, MF Rules)
Further, Sebi is soon going to ask companies seeking to raise funds through Initial Public Offers (IPOs) to complete the bidding process within a maximum five days and get listed in another five days. To shorten the entire IPO process, Sebi is also working at faster allotment of shares to investors and reduce the time-gap between closure of issue and final listing from 12 days to five days, a senior official said. (Read: Sebi Wants Shorter IPO Bidding Period)

Approach Sebi
The regulator further said that listed entities "desirous of achieving the minimum public shareholding requirement through other means may approach Sebi with appropriate details.

"Further, listed entities desirous of seeking any relaxation from the available methods may approach Sebi with appropriate details," it said.

Sebi said such requests would be considered by it on merit and the regulator would seek to communicate its decision within 30 days from the date of receipt of such requests.

In rights and bonus issues, the promoters are also entitled for issuance of shares, as a result of which they might not be able to dilute their stake.

Therefore, Sebi has decided that the promoters can forego their entitlement of shares in such issues to dilute their stake to meet the minimum public holding norms.

As a result, the shares would be allotted to only public shareholders under such rights and bonus issues. Normally, all existing shareholders have a right to apply for shares, in accordance with their existing holding, in a rights issue.

In case of bonus issue, the companies issue additional shares to all existing shareholders in a pre-decided ratio as per their current holding.

Sebi has asked the promoters of all private sector firms to dilute their stake to the extent that the company has a minimum public holding of 25 per cent by June, 2013.

For the public sector companies, the promoters have been asked to pare their holding to an extent that such entities have a minimum public holding of 10 per cent by August, 2013.

The two additional routes of rights and bonus issues for meeting minimum public shareholding norms follow Sebi's decision in January, 2012 to allow four methods to comply with these regulations.

These four include issuance of shares to public through prospectus, offer for sale of shares held by promoters to public through prospectus and through sale of shares held by promoters through OFS and IPP routes in the secondary market.

Since then, nine companies have used these methods to achieve minimum level of public shareholding, with promoters offloading shares worth about Rs 3,100 crore.

Out of these nine companies, six companies have so far achieved minimum public shareholding requirement.

However, 16 PSUs and 184 non-PSUs are still required to meet the minimum public shareholding requirement and this would involve an estimated amount of about Rs 32,000 crore (Rs 11,000 crore for PSUs and Rs 21,000 crore for non-PSUs).

Sebi has been receiving representations from various market participants to provide for more methods to the non-compliant companies so as to enable them to achieve the minimum level of public shareholding within stipulated time.

Consequently, the regulator sought suggestions from its Primary Market Advisory Committee (PMAC) for permitting rights and bonus issue by companies for achieving minimum public shareholding, wherein the promoters of the company forgo/waive their rights/bonus entitlement in favour of public investors.

After deliberations, the committee recommended these additional methods to achieve minimum level of public shareholding.

Earlier in the day, Sebi whole-time member Rajeev Agarwal said in Mumbai that companies have to comply with the minimum shareholding norm within the set timeline.

"Sebi is very clear that this (minimum shareholding norm) has to be done in the given time frame," Agarwal told reporters on the sidelines of an Institute of Company Secretaries of India (ICSI) event here.

He also said Sebi has provided enough avenues for achieving the minimum shareholding norm.