Higher threshold to push India closer to global norms

With a Securities and Exchange Board of India (Sebi) panel recommending pushing the open offer trigger level from 15 per cent to 25 per cent, India has inched closer to the norms in major world economies, where the threshold is 30 per cent or above.

In the UK, the first trigger point is 30 per cent. Initial trigger points in other countries like Singapore, Hong Kong, European Union and South Africa are in the range of 30 per cent to 35 per cent. In India, according to the Companies Act, anyone holding in excess of 25 per cent can block special resolutions.

The Takeover Regulations Advisory Committee, in its report to Sebi, said the threshold of 15 per cent was fixed in an environment where the shareholding pattern in corporate India was such that it was possible to control listed companies with a shareholding of as low as 15 per cent.
 

GLOBAL BEST PRACTICES

• In the UK, the threshold is 30%
• In Singapore, HongKong, the EU & S Africa, it is 30-35 %
•   Less than 8.4 % listed companies are controlled by promoters holding 15% or less
• Mean and median of promoter shareholdings in listed companies at 48.9 per cent and 50.5 per cent, respectively
• In India, anyone holding in excess of 25% can block special resolutions

According to the report, the mean and median of promoter shareholdings in listed companies are 48.9 per cent and 50.5 per cent of the total equity capital, respectively. Moreover, the number of companies declared to be controlled by promoters holding 15 per cent or less is below 8.4 per cent. On the Bombay Stock Exchange (BSE), only 6.1 per cent listed companies have promoter shareholding of between 15 per cent and 25 per cent.

The trigger levels in other countries were set primarily based on the level at which a potential acquirer could excercise positive control over a company. “Taking into account both the ability of promoters to exercise de facto control at 25 per cent and the law governing special resolutions, a 30 per cent threshold would be too high,” said the committee.

“The existing trigger threshold of 15 per cent has outlived its contextual relevance and requires an upward revision. A significant change in the shareholding pattern in listed companies has been observed over the last few years,” said the committee.

“Despite the increase in the mean level of promoter shareholding, there are a number of prominent companies in India which are controlled by shareholders holding between 25 per cent and 30 per cent of the voting capital of the company,” said the report. This trend, the report added, suggested that promoters would be capable of excercising de facto control at the 25 per cent level.