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Sebi might leash wilful defaulters in markets

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Market regulator Securities and Exchange Board of India ( Sebi) is likely to approve aproposal to bar wilful defaulters from making public issue of equity, debt, or hybrid securities. However, Sebi plans to allow a company declared wilful defaulter to raise capital through rights issue or qualified institutional placements to ensure minority shareholders are not put in adisadvantageous situation due to the wrongdoing of promoters.
The regulator will also provide more teeth to its takeover regulations by introducing bright lines to define change in control in a merger and acquisition.
"By taking a bright line stance, Sebi will try to send a clear signal that changes in control will not solely be linked to percentage. If an entity acquires only 20 per cent but gets some say in management of listed target company, it may result in control," said a legal expert.
The decisions are likely to be taken by the Sebi board at its meeting scheduled for Saturday in New Delhi, which will also be attended by Finance Minister Arun Jaitley.
According to sources, the board is likely to accept all recommendations made in a discussion paper on wilful defaulters floated a year ago. Under the current regulatory framework, a wilful defaulter is allowed to raise capital by issuing shares simply by making adequate disclosures.
Initial public offerings ( IPO) or a follow- on public offer (FPO), Sebi plans to plug this loophole, people in the know said. Another important topic of discussion for the Sebi board is introducing bright lines in the takeover regulations.
At present, an open offer is triggered when an entity buys minimum 25 per cent shares in a listed target. However, in some cases an entity acquires less than the threshold to avoid open offer obligation, yet gains a say in the management of the target company.
SEBI MEETING AGENDA
Key topics:
  • Imposing capital market access restrictions on wilful defaulters
  • 'Bright line' test to define change in control under the takeover regulations
Other points:
  • Leeway to exchanges on transferring 25% of profits to settlement guarantee fund
  • Discussing recent Budget announcements on securities market
  • Relaxing criteria to absorb 15 FMC employees in Sebi
  • Budget Estimates for new financial year
  • Status update on the campus of the Rs.400- crore National Institute of Securities Markets
Business Standard, New Delhi, 9th March 2016

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