Promoter reclassification: Sebi mulls 1-year wait after request

Regulator plans discussion paper on explicit conditions for switch to ordinary shareholder status

In October, the founding-promoters of Infosys Technologies had sought the market regulator’s nod to formally reclassify themselves as public shareholders. It is possible they might have to wait till October next year before they have their request granted.

For, the Securities and Exchange Board of India (Sebi) wants promoters to wait for at least a year from the day of intimation, under its proposed framework on such reclassification. It also wants promoters, on such a request, to be made to wait for three years before raising their stake to the permissible level under the minimum public shareholding norms.

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

CHANGING ROLE
Three board categories under which Sebi might allow promoters to be re-classified as non-promoter

• Separation agreement
• Shareholding dropping to below 5%
• Open offer under takeover code or exemption by Sebi

The issue had surfaced last year, when some entities were seen reclassifying themselves as ordinary shareholders ahead of the deadline for achieving a mandatory 25 per cent minimum public float.

Sebi is likely to allow promoters to become non-promoters under three scenarios -- a drop in shareholding of the entire promoter group to below five per cent, forging a ‘separation agreement’ with the company wherein the promoter group ceases to exercise all rights and power and the third would be following an open offer. The critical criteria in the proposed framework for reclassification will be surrendering all the special rights such 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 requisite is likely to be that the entities applying to give up promotership shouldn’t have any pending market ban on themselves.