Shareholder reclassification put on hold

NSE tells firms not to proceed with reclassifying promoters as ordinary shareholders till Sebi notifies approved guidelines

About two dozen companies, including Mindtree, Indiabulls Real Estate, Infosys and Sun Pharmaceutical Industries, might have to put on hold their promoter reclassification plans till regulations are issued in this regard.

Some which have gone ahead with categorising some promoter entities as ordinary shareholders, might have to again reclassify these as promoters.

This follows the National Stock Exchange (NSE) writing to the companies to change nothing on promoter reclassification till regulations are issued by the Securities and Exchange Board of India (Sebi).

“We have sent such letters to individual companies when they sought permission from the exchange for reclassification. All this was sent before the guidelines were announced,” said V R Narasimhan, chief regulatory officer, NSE, in a reply to a query from Business Standard.

ON THE BACK BURNER

• NSE asks companies to wait for Sebi notification on promoter reclassification
• Move likely to impact at least 14 companies
• These companies will have to maintain status quo or might have to once again classify some entities as promoters
• Sebi board in June had cleared framework for promoter reclassification
• Sebi has allowed reclassification as ordinary shareholders provided promoters give up control or special rights if any

NSE declined to comment on individual cases.

The Sebi board in June had approved norms for reclassification of promoters, where a promoter entity willing to forgo control and special privileges was allowed to be termed an ordinary shareholder. These regulations, however, are yet to be notified by Sebi.

In the proposed regulations, Sebi would allow the reclassification after signing of a separation agreement and promoter holding falling below five per cent. The regulator will also allow reclassification on a case-to-case basis if it feels the move is appropriate.

Any entity later termed public would not be allowed to hold key management positions in the listed company or its associate and cannot exercise control over the affairs of the company. A company would need to disclose the details and reason for reclassification to stock exchanges.

The co-founders of information technology major Infosys, N R Narayana Murthy and S Gopalakrishnan, had last year made a request for this declassification. The company said last October it would evaluate the legal implications. Presently, they are classified as promoters.

Another listed company in the oil sector applied in February 2015 to declassify its promoters. Companies in the engineering and real estate sectors sought de-classification of promoters in January. Two sets of promoters were formally changed from joint to sole control in June last year.

In another company, informal guidance for declassification of relatives as a promoter group was rejected by Sebi.

Some companies have reclassified despite the regulations being yet to be notified.

The issue had come up during the process of compliance with the 25 per cent minimum public shareholding norm. At the time, Sebi had frowned upon moves by some companies to reclassify some promoters as public shareholders, ahead of the deadline for meeting this norm. Gillette India, Gokaldas Exports and Balmer Lawrie were companies at odds with Sebi on this issue.

In June 2013, the Securities Appellate Tribunal (SAT), while hearing Gillette’s appeal, directed Sebi to look into instances where companies had removed certain entities from the promoter group to the public category. “The regulator should not contemplate action but a solution,” Jog Singh, presiding officer of SAT, had said. COMPANIES TO BE IMPACTED BY THE MOVE

• Info Edge (India)
• Asian Hotels (North) Limited
• KDJ Holidayscapes & Resorts Ltd
• Pennar Industries Limited
• Indiabulls Real Estate
• Infosys Limited
• Mind Tree
• OnMobile
• Accel Frontline
• Sun Pharma
• Hindustan Oil Exploration Company
• Gillette
• Zuari Agro Chemicals & Zuari Global
• ING Vysya Bank