Sebi for stricter public shareholding norms

Further changes to OFS also likely at Sebi board meeting on Jan 18

The Securities and Exchange Board of India (Sebi) might discuss the penalty it plans to impose on companies failing to meet the minimum public shareholding norms and further changes to the offer for sale (OFS) norms, among other matters, when its board meets on January 18.

Freezing of voting rights of promoters, expulsion of the company from the derivative segment, shifting of its scrip to trade-to-trade category, and debarment of the promoters from the capital markets are some of the likely actions the securities market regulator is considering against companies failing to achieve at least 25 per cent public holding before June, according to people with direct knowledge of the matter.

“The regulator is looking at finding a way where only the promoters of non-compliant companies will be impacted and the interest of minority shareholders in the company will be safeguarded,” said a person with knowledge of the matter, who did not wish to be identified.

WHAT'S ON THE CARDS?

• Sebi board meeting on January 18
   
• Strict action likely against companies that fail to achieve 25 per cent public shareholding
   
• Promoters could face freezing of voting rights, debarment from markets
   
• Companies could be shifted to T2T; expulsion from F&O
   
• Changes to OFS also likely
   
• Lower margins and more transparency during bidding

There are about 125 private companies with promoters holding more than 75 per cent. At today’s valuations, these firms will have to sell nearly Rs 23,000 crore worth of paper to attain the required public holding.

In the past couple of months, Sebi has had one-on-one meetings with some of these companies across various cities, where the regulator sought to clear doubts of companies and also cautioned them on the likely action for non-compliance.

At the board meeting, Sebi is likely to tweak the OFS framework for a second time, to bring more transparency in the bidding process. According to sources, the regulator could direct stock exchanges to provide cumulative bids and indicative prices on an hourly basis. Currently, the indicative pricing is displayed less than an hour before the closing of bids.

OFS, the institutional placement programme (IPP), rights issues and bonus shares are the routes allowed by Sebi to help companies increase public float. Of these, OFS has emerged as the most popular tool used by companies to achieve public shareholding target.

Review of the OFS framework is aimed at ironing out any issues in this method and to encourage companies to use this method to pare promoter holding.

Sebi is also likely to consider further reducing the margin requirement for institutional investors under OFS. A number of market participants, including the government, have requested the regulator to do away with the requirement due to foreign currency risks and uncertainty of allotment for institutional investors.

According to sources, Sebi is not too happy about completely doing away with the margin requirement, as it believes this could increase the risks. However, the regulator could bring the requirement at par with the secondary market, though exchanges will have to ensure that trades go through properly.

“There is no end to such demands. However, if the situation so demands, we will look at timing, margins and any other changes. I am sure nobody will be happy if the margin requirements are removed and the trades are not honoured,” Sebi chairman U K Sinha had said at an event last month.

Earlier, the margin requirement for OFS was 100 per cent but Sebi in June 2012 made it ad hoc, to be decided by the stock exchanges.