Skip to main content

Public shareholders could find it easier to become promoters

By

The Securities and Exchange Board of India or Sebi is likely to relax rules to make it easier for a public shareholder to become the promoter of a company, and vice versa, two people with direct knowledge of the development said. 
Both the processes impose onerous terms but the one to become a public shareholder from a promoter is some what tougher, they said, requesting anonymity.
 
According to the existing norms, if a public shareholder wants to become the promoter of a listed company he needs to buy at least 25% stake and offer to buy more from public shareholders. On the other hand, if a promoter wants to become a public shareholder, he is required to cut his shareholding to 10% or lower if another entity comes and takes over as a promoter along with a subsequent open offer and a shareholder approval.
 
If there is no takeover but the promoter decides to reclassify himself as a public shareholder to turn the company into a professionally managed one, he needs to bring down his shareholding to 1% or lower. This becomes a difficult task for promoters, especially those with large stakes, because it is tough to find buyers for big stakes and the sale may impact the stock price as well as shareholders’ sentiment. If there are multiple promoters, the task to reduce stakes to 1% or lower becomes even tougher.
 
This norm makes a promoter a distressed seller, said Yogesh Chande, a partner at law firm Shardul Amarchand Mangaldas and Co. “As long as there is no control being exercised (directly or indirectly) by the outgoing promoter, such an outgoing promoter should be permitted to become a public shareholder of the target company without the requirement of the shareholding threshold falling below 1%.”
 
Existing norms act as a major roadblock for smooth transactions by promoters and the basic ease of doing business, one of the two people cited above said.“Sebi met investment bankers recently and is seriously considering harmonising the promoter holding rules for listed firms.” An email sent to Sebi remained unanswered.
 
In June 2015, Sebi had put in a mechanism for re-classification of promoters of listed companies as public shareholders. Sebi defined promoters as those who hold 10% or more and are in control of the issuer; or are instrumental in the formulation of a plan after listing. There are no barriers for relatives or associates of promoters to enter into this class of “promotership”. But once a person has been named as a promoter, such person cannot become a public shareholder until he or she brings down the stake to 10% or below and obtain a shareholders’ approval.
 
“The norms on reclassification of promoters need a relook,” said Sandeep Parekh, founder, Finsec Law Advisors.In case of takeovers and open offers, as long as there is no control being exercised by the outgoing promoter, the person should be permitted to become a public shareholder without any requirement of obtaining shareholders’ approval and without any requirement of shareholding threshold falling below 10%, Chande said.
 
Hindustan Times New Delhi, 19th June 2017

Comments

Post a Comment

Popular posts from this blog

RBI deputy governor cautions fintech platform lenders on privacy concerns during loan recovery

By
  India's digital lending infrastructure has made the loan sanctioning system online. Yet, loan recovery still needs a “feet on the street” approach, Swaminathan J, deputy governor of the Reserve Bank of India, said at a media event on Tuesday, September 2, according to news agency ANI.According to the ANI report, the deputy governor flagged that fintech operators in the digital lending segment are giving out loans to customers with poor credit profiles and later using aggressive recovery tactics.“While loan sanctioning and disbursement have become increasingly digital, effective collection and recovery still require a 'feet on the street' and empathetic approach. Many fintech platforms operate on a business model that involves extending small-value loans to customers often with poor credit profiles,” Swaminathan J said.   Fintech platforms' business models The central bank deputy governor highlighted that many fintech platforms' business models involve providing sm
Post a Comment
Read more

Credit card spending growth declines on RBI gaze, stress build-up

By
  Credit card spends have further slowed down to 16.6 per cent in the current financial year (FY25), following the Reserve Bank of India’s tightening of unsecured lending norms and rising delinquencies, and increased stress in the portfolio.Typically, during the festival season (September–December), credit card spends peak as several credit card-issuing banks offer discounts and cashbacks on e-commerce and other platforms. This is a reversal of trend in the past three financial years stretching to FY21 due to RBI’s restrictions.In the previous financial year (FY24), credit card spends rose by 27.8 per cent, but were low compared to FY23 which surged by 47.5 per cent. In FY22, the spending increased 54.1 per cent, according to data compiled by Macquarie Research.ICICI Bank recorded 4.4 per cent gross credit losses in its FY24 credit card portfolio as against 3.2 per cent year-on-year. SBI Cards’ credit losses in the segment stood at 7.4 per cent in FY24 and 6.2 per cent in FY23, the rep
Post a Comment
Read more

India can't rely on wealthy to drive growth: Ex-RBI Dy Guv Viral Acharya

By
  India can’t rely on wealthy individuals to drive growth and expect the overall economy to improve, Viral Acharya, former deputy governor of the Reserve Bank of India (RBI) said on Monday.Acharya, who is the C V Starr Professor of Economics in the Department of Finance at New York University’s Stern School of Business (NYU-Stern), said after the Covid-19 pandemic, rural consumption and investments have weakened.We can’t be pumping our growth through the rich and expect that the economy as a whole will do better,” he said while speaking at an event organised by Elara Capital here.f there has to be a trickle-down, it should have actually happened by now,” Acharya said, adding that when the rich keep getting wealthier and wealthier, they have a savings problem.   “The bank account keeps getting bigger, hence they look for financial assets to invest in. India is closed, so our money can't go outside India that easily. So, it has to chase the limited financial assets in the country and
Post a Comment
Read more