One year wait for promoters to don ordinary shareholder hat

Sebi to float paper detailing the process for reclassification of promoters

The founding-promoters of Infosys in October sought the market regulator’s nod to reclassify themselves as public shareholders. They might have to wait till October next year before they see their name off the promoter’s list.

The Securities and Exchange Board of India (Sebi) wants promoters to wait for at least one year from the day of intimation under the proposed framework on promoter reclassification. 

Moreover, promoters will not be considered to be public shareholders for a period of three years with respect to compliance of 25% minimum public shareholding (MPS) norms.

The market regulator soon plans to float a discussion paper detailing the process and conditions to be fulfilled for entities wanting to surrender their promoter tag. Currently, there are no explicit guidelines in place for reclassification of promoters as public.

The issue of promoter reclassification had first surfaced last year when some entities were seen reclassifying themselves as ordinary shareholders ahead of the deadline for achieving mandatory 25% public float.

Sebi is likely to allow promoters to become non-promoters under three scenarios. These include drop in shareholding of the entire promoter group to below 5%, forging a ‘separation agreement’ with the company where the promoter group ceases all rights and power and third would be following an open offer.

The most important criteria in the proposed framework for reclassification will be surrendering all the special rights that an entity enjoys in a company. Also, the outgoing entities will be barred from taking up any key managerial position in the company or its subsidiaries.

Another critical pre-requisite is likely to be that the entities applying to give up promotership shouldn’t have any pending market ban on them.