Sebi in favor of companies formulating policy on dividends distribution

Cash-rich companies may soon have to give a justification for sitting on their cash pile

Market regulator, Securities and Exchange Board of India (Sebi) is mulling to formulate rules that would direct listed entities to have a policy in place for distribution of dividend.

Sebi chairman, UK Sinha while addressing questions of journalists at a corporate governance conference, Gatekeepers of Governance, highlighted that the huge cash piles of certain companies is a worrying signal.

"In India there is no declared dividend policy. Shareholders are demanding a dividend policy. Nobody asking that the entire cash be paid but there should be a dividend policy that if the company is making profit, an amount will be distributed," said Sinha.

The work is currently at preliminary stages and any policy would be formed only after market consultation.

As per an analysis by Business Standard the total cash balance of CNX 500 companies is over a staggering Rs 5 lakh crore as of April 2014.

The companies that rank the highest in terms of cash holding includes the government owned Coal India with cash holding of over Rs 52,000 crore followed by the Mukesh Ambani led Reliance Industries with cash balance close to Rs 38,000 crore.

Tata motors cash balances stand at approximately Rs 30,000 crore.

Recently, the markets regulator approved amendments to delisting regulations which has raised some concerns in the market.

"There have been some criticism of our decision that a delisting will go through after 25 per cent public shareholders by number be a part of reverse book building," said Sinha.

"I won't agree that this would be a deterrent. I would expect the corporate India wanting to delist, to make a serious attempt to reach out," said Sinha.

Sebi also stated that they have made delisting easier. Earlier, it was prescribed that if shareholding exceeded 75 per cent, you had to first come down to 75 per cent. And then file for delisting. It was a two-staged process. Now, if a company wants to get delisted it can express their willingness at the beginning and the two-stage process can be done away with.

The recent clarificatory circular on offshore derivative instruments (ODI) and participatory notes (P-notes) had sparked a worry amongst the investors that it would impact the foreign fund flows.

Sebi chief however, pacified the concerns stating that it would mean only minor adjustments in foreign portfolios in India but would enhance transparency in the foreign investors' transactions.

Sinha also said that Sebi's latest circular on participatory notes (P-notes) was only clarificatory in nature and will not impact foreign inflows.

"We have done a very detailed analysis of the data. Please rest assured that it will not impact the flows," said the Sebi chief.

Sebi in the circular released on November 24 had stated that ODIs would be clubbed together as investment by a single FPI.

Additionally Sebi chief also informed that the new insider trading norms would be notified soon.