Shareholding gaffe at Glenmark Life: Focus shifts to Sebi new rules

Company promoters bought shares even when they held more than 75 per cent

An apparent shareholding gaffe at Glenmark Life Sciences, which came to light recently, has brought into focus a new system introduced by market regulator Securities and Exchange Board of India (Sebi) that seeks to prevent the inadvertent purchase of shares by company insiders during the ban period.

Glenmark Life Sciences (GLS), a subsidiary of Glenmark Pharmaceuticals and a developer and manufacturer of active pharmaceutical ingredients (APIs), got listed in August 2021, following a Rs 1,500-crore initial public offering (IPO). After listing, the promoter shareholding in the company fell from 100 per cent to 82.84 per cent. After IPO, any company has three years to bring down their promoter holding to at least 75 per cent to comply with the minimum public shareholding requirement. During this time, promoters are not allowed to increase their stake further.

However, GLS’ promoter shareholding went up marginally -- from 82.84 per cent to 82.85 per cent, shows the shareholding data available on stock exchanges. This was on account of purchase of 7,800 shares from the open market by one of the promoters.

According to Stakeholders Empowerment Services (SES), a proxy advisory firm, promoters can only acquire any additional share in their company when their shareholding is below 75 per cent, or else it is a breach of Sebi’s SAST (Substantial Acquisition of Shares and Takeovers) Regulations.

“In this case, the promoter (Glenmark Pharmaceuticals and Glenn Mario Saldanha) already held 82.84 per cent and Saldanha purchased 7,800 shares (0.01 per cent) from the market in November 2021. What are the consequences of such acquisition and violation of law? The SAST Regulations have only two windows - open offer or exemption by Sebi,” said SES.

Since the acquisition is minuscule, it is likely that this is an “inadvertent violation”. But Sebi’s regulations are silent on addressing such anomalies, said SES.

According to SES, the increase in stake was first reflected under ‘public’ shareholding based on a BSE disclosure on January 27, 2022, and later was rectified under the correct ‘promoter’ shareholding head.

In its response to a query by Business Standard, GLS said it has made the necessary disclosures. “The shares were purchased towards the end of 2021 and were appropriately disclosed in accordance with applicable law,” a spokesperson stated.

Last month, Sebi came up with a new mechanism to tackle such issues at its root. This system prevents company insiders from dealing in shares whenever they are not allowed to. This is done by putting the depository participant (DP) identification numbers into the restriction list every time the trading window is closed.

“(To) Improve ease of doing business and prevent inadvertent non-compliance of provisions of PIT Regulations by DPs, after having deliberations with stock exchanges and depositories and listed companies, it has been decided that stock exchanges and depositories shall develop a system to restrict trading by DPs of listed company during trading window closure period,” Sebi said in a circular.

But there isn’t much clarity on when the new system will be up and running and whether it will also apply for instances, such as GLS.

However, legal experts say Sebi’s proposal will help a great deal in preventing inadvertent trades by company insiders without fully understanding the restrictions.

Treatment so far

• Glenmark Life Sciences, 100% subsidiary of Glenmark Pharma, launched IPO in July 2021
• Post-IPO, stake of promoter group fell from 100% to 82.84%
• Sebi rules provided three years to reduce promoter stake to 75%
• During this time further purchase of shares by promoters wasn’t permitted
• Promoter Saldanha purchased 7,800 shares (0.01 per cent) from the market in November 2021
• Proxy firm SES said purchase, even if inadvertent, violated SAST regulations
• Sebi rules silent on treatment for inadvertent purchases
• New framework devised by markets regulator to help prevent inadvertent purchases gains importance