Investors seek meeting with Sebi to oppose NSE rejig

They want the exchange's restructuring plan aborted as it could delay its IPO and lead to huge tax liabilities

Shareholders in the National Stock Exchange (NSE) have sought a meeting with the Securities and Exchange Board of India (Sebi) about their opposition to NSE's restructuring plan. This follows a letter opposing the plan, sent by a group of nine investors to the exchange's chairman on January 13.

The shareholders want Sebi to direct the exchange to drop its restructuring plan, which, they say, could delay the exchange’s Initial Public Offering (IPO) of shares and lead to significant tax liabilities. The regulator has agreed to schedule a meeting with the shareholders to discuss the issue, say people in the know. “We are hoping that Sebi takes up the matter with the exchange and directs it to drop its restructuring plan,” said a shareholder, on the condition of anonymity.

According to a legal expert, the exchange is well within its rights to seek restructuring, which needs market regulator Sebi’s nod. “In all probability, Sebi will do an independent evaluation of the proposal and may not be swayed by the recent complaints by the shareholders,” he said. However, he pointed out that a regulatory nod does not guarantee that the proposal will go through, as it may be blocked by the shareholders at the special resolution stage. “Technically, shareholders constituting more than 25 per cent paid-up equity capital of the company can block the proposal,” he said. (Paid-up capital is the amount of a company's capital funded by shareholders. Paid-up capital can be less than a company's total capital because a company may not issue all of the shares it has been authorised to sell.)

Accounting for SBI’s opposition, at least 35 per cent of shareholders at present are not in favour of the restructuring. State Bank of India and subsidiary SBI Capital Markets together hold around 15 per cent in NSE. It could take at least a month for Sebi to evaluate the merits of the restructuring plan, said experts.

In the January 13 letter, the nine investors — mostly foreign private-equity players which together hold about 20 per cent stake in NSE — had pointed out that the merits of undertaking the restructuring had not been satisfactorily demonstrated by NSE and its management to the shareholders. The investors had requested the exchange not to go ahead with its restructuring plan and not to seek Sebi’s approval for the same.

The letter requested the exchange to file an in-principle approval application for listing with Sebi within the next 30 days and start the groundwork for listing.

In an email response last week, an NSE spokesperson said the restructuring plan was for ring-fencing the core regulatory function of the exchange after listing.

“Since Sebi's  in-principal consent at least is required, it is only logical that the exchange explored regulatory feasibility for the process. Besides, during the past few months, NSE did have formal meetings with shareholders where the same was discussed,” he said.

The demand for listing has grown stronger in recent weeks after the market regulator relaxed its ‘fit and proper’ norms. Besides private-equity players, domestic entities like IFCI, SBI, and IDBI Bank have now expressed disapproval over the delays in getting the exchange listed.

The new rules allow shareholders in an exchange to certify if they are ‘fit and proper’ to hold a stake in an exchange. Sebi has said that shareholders will need to seek Sebi’s approval within 15 days of acquisition, for purchasing more than two per cent shares in a listed exchange, while those wanting to acquire beyond five per cent will have to seek prior approval.