Skip to main content

Sebi norm on profit-sharing puzzles firms

By
Sebi norm on profit-sharing puzzles firms
Norms issued by the Securities and Exchange Board of India (Sebi) on profit-sharing agreements have forced companies to seek clarifications.
A round six companies have sought informal guidance over applicability of the provisions in various situations.
An informal guidance is a method for entities to seek interpretation from the market regulator on any regulation, circular or guideline. Although Sebi acts in accordance with an informal guidance, it is not a binding obligation.
Legal experts say there are many grey areas in the circular issued by Sebi in November last year to curb profit-sharing arrangements, which are typically side-deals between the managements of companies and private equity investors.
One of the key issues is how “profit” is interpreted because there is no standard definition, experts point out. Further, it is unclear whether the provisions are applicable to payments made in unlisted subsidiaries of listed companies. Also, whether a payment made by an investor after exiting the stock can be construed as a profit-sharing agreement.
Many such situations have cropped up in the past year, forcing companies to seek clarity from Sebi. Section 26(6) of the Listing Obligations and Disclosure Requirements (LODR), which deals with profit-sharing agreements, states: “No employee, including key managerial personnel or director or promoter of a listed entity, shall enter into any agreement for himself or on behalf of any other person with regard to compensation or profit sharing…unless prior approval has been obtained from the board of directors as well as public shareholders.”
According to Sumit Agrawal, partner, Suvan Law Advisors, this regulation permits scope for interpretation. “There are at least two views available. An agreement which is not for ‘compensation or profit sharing’ and in connection with dealings in the securities of such listed companies that are allowed without approval of the board or public shareholders. Even the revenue-sharing agreements require preapproval. Some structures are also available for non-employee consultants,” he pointed out.
“Sebi has kept the provisions open to interpretation because if it lays out specific conditions, companies will find a way around them. The middle path is for Sebi to release an FAQ on the subject,” said another lawyer. In a recent application for informal guidance, PNB Housing Finance said Destimoney Enterprises held a 49 per cent stake in the NBFC since 2009. It made a complete exit from PNB Housing Finance in 2015 and it wanted to pay the top management some money as a token of its appreciation for the apprciation of its invetement. The issue was not taken up at that time as there was no regulatory clarity.
In 2016, PNB Housing was listed and Destimoney proposed to offer the incentive again. PNB Housing asked Sebi if it could accept the offer. In its reply, Sebi stated although all the events occurred when the company was unlisted, the consideration for payment was being made when the company was listed and hence it had to comply with the regulation.
The Business Standard, New Delhi, 14th December 2017

Comments

Post a Comment

Popular posts from this blog

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...
Post a Comment
Read more

SFBs should be vigilant, proactive to mitigate risks: RBI deputy guv

By
  The Reserve Bank of India’s Deputy Governor Swaminathan J on Friday instructed the directors of small finance banks (SFBs) to be vigilant and proactive in identifying emerging risks in the sector.Speaking at a conference for directors on the boards of SFBs, Swaminathan highlighted the role of governance in guiding SFBs towards sustainable growth with stability. He also emphasised the importance of sustainable business models.Additionally, he highlighted the need for strengthening cybersecurity to protect the entities against digital threats and urged for a stronger focus on financial inclusion, customer service, and grievance redressal to ensure a broader reach of banking services.Executive Directors S C Murmu, Rohit Jain, and R L K Rao, along with other senior officials representing the Supervision, Regulation, and Enforcement Departments of the RBI, also participated in the conference.   -  Business Standard  30 th  September, 2024
Post a Comment
Read more

Brigade Hotel Ventures files draft papers with Sebi for Rs 900 crore IPO

By
  Brigade Hotel Ventures Ltd, owner and developer of hotels in South India, has filed draft papers with capital markets regulator Sebi to raise Rs 900 crore through an initial public offering (IPO).The proposed IPO is entirely a fresh issue of equity shares with no Offer-for-Sale (OFS) component, according to the draft red herring prospectus (DRHP).Proceeds from the issue to the tune of Rs 481 crore will go towards payment of debt, Rs 412 crore will be allocated to the company and Rs 69 crore to its material subsidiary, SRP Prosperita Hotel Ventures Ltd.Additionally, Rs 107.52 crore will be used to purchase an undivided share of land from the Promoter, BEL, and the remaining funds will support acquisitions, other strategic initiatives, and general corporate purposes.The company may raise up to Rs 180 crore through a Pre-IPO Placement.   If the placement is undertaken, the issue size will be reduced.Brigade Hotel Ventures Ltd is a wholly-owned subsidiary of Brigade Enterprises ...
Post a Comment
Read more